U.S. Job Growth Falls to Slowest Pace of the Year

The U.S. Economy added just 194000 jobs while unemployment rate dropped to 4.8 % as many workers exited labour force.

By guest author Josh Mitchell from the Wall Street Journal

U.S. job growth fell to the slowest pace of the year in September, as the Delta variant and a persistent shortage of workers restrained the ability of companies to hire.

The economy added 194000 jobs in September, the smallest gain since December 2020 and down from the upwardly revised 366,000 jobs added in August, the Labour Department said Friday. The jobless rate fell to 4.8 % from 5.2 % a month earlier. The rate fell largely because many workers exited the labour force.

The figures add to evidence that fears about the virus and global supply constraints continue to hold back the economic recovery. The biggest factor behind last month’s weak payroll gain was a decline in public-sector jobs, mainly at schools. Employment in private-sector industries rose by 317000 in September, with modest gains across several industries.

The spread this summer of the Delta variant, a particularly contagious strain of Covid-19, likely spooked would-be job seekers and impeded speedier job growth in September, despite many companies being desperate to hire, economists and business leaders say.

“Ramped up production may be necessary, but you can’t find the employees to ramp it up,” said Ann Silver, head of the local Chamber of Commerce in Reno, Nev. “We’re hearing that from every sector—hospitality and touring, healthcare, you name it. People can’t be found. Everybody’s quick to say, ‘Wow, the economy is rebounding.’ Well, it can’t without human beings.”

Employers appear eager to hire across the country. There were nearly 11 million unfilled jobs at the end of July, the highest on record and exceeding the number of unemployed workers seeking jobs, Labour Department figures show. The U.S. had roughly five million fewer jobs in August compared with February 2020.

Employers are increasingly holding on to the workers they do have, with layoffs across the U.S. declining. Applications for initial jobless claims fell by 38,000 last week to 326,000, close to a pandemic low, the Labour Department said Thursday.

The jobless rate remains higher than the pre-pandemic level of 3.5 %. But other measures—chiefly, wage growth—suggest the labour market is tight. The average hourly pay of private-sector workers climbed 4.6 % in September compared with a year earlier, Labour Department data show, as employers raised wages to compete over a shrunken pool of workers.

At Great Basin Brewing Co.’s two restaurants in the Reno, Nev., area, managers have raised the wages of cooks by 30% since January, said co-founder Tom Young, who recently sold the company to private investors. Diners have returned to the restaurants in droves this year, but instead of seating the normal 180 patrons in each store they will only seat a maximum 150 due to the lack of kitchen staff, Mr. Young said. The company seeks to hire 10 people. “There aren’t enough workers to go around here,” Mr. Young said.

The labour-force participation rate—or the share of workers with a job or actively looking for one—was little changed at 61.6 % in September, down from 63.3 % in February 2020 ahead of the pandemic.

The number one reason why people are avoiding the workforce is fear of catching the coronavirus, according to an August survey by the job-search website Indeed. Other factors include parents staying at home to care for children while some schools remained closed this year.

Economists point to at least two reasons for why they think job growth picked up last month. One is that many school districts reopened and likely hired workers such as cafeteria workers and bus drivers. The reopening also may have enabled parents, particularly mothers, to return to work. With Covid-19 cases declining recently and vaccinate rates rising, more workers could return to the labor force, economists say.

“If previous declines in case counts are any guide, the reduced salience of the pandemic will lead to more folks returning to the labor force,” said Nick Bunker, economist at Indeed.

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Supply Shock
The job market is weakening, and it’s overwhelmingly due to the supply of workers, not the demand. Non-farm payrolls grew only 194,000 last month, less than half of what Wall Street expected. The Delta variant may still be depressing some customer-facing sectors, but less so than in August; employment in both retail trade and leisure and hospitality rose decently. There are other signs of strong labor demand. For example, the average workweek jumped to 34.8 hours from 34.6, near the top of the very high range that has prevailed since last fall. Average hourly earnings surged 0.6%, and by 0.7% among non-management leisure and hospitality employees. Because average wages have been heavily distorted by big swings in low-wage employment, a better picture emerges from looking at the change since the start of the pandemic. For all workers, the cumulative gain is 8.2% (5.1% annualized). In leisure and hospitality, the gain is a stunning 12.1% (7.5% annualized). According to Jason Furman of Harvard University, there are now 1.5 job openings for every unemployed worker, a record ratio.
Where Are the Missing Workers?
Another sign the problem is supply, not demand: The labor force shrank last month, by 183,000, remaining some 3.1 million smaller than before the pandemic. The labor force participation rate ticked down to 61.6% and has held in a narrow range since last summer. It was over 63% before the pandemic. Exactly where those workers went remains a bit of a mystery. Discouragement doesn’t seem to be the reason: The number of people who didn’t look for work but want a job ticked up slightly, to 409,000, but remains far below levels of just a few months earlier. The broadest measure of underemployment dropped to 8.5% from 8.8%, the lowest since the pandemic began and roughly where it stood in mid-2017. Enhanced unemployment benefits expired nationwide last month but left no discernible mark on the aggregate data. Indeed, the number of job market re-entrants dropped. The Census Bureau’s biweekly “pulse” survey suggests Delta had some effect: The number of people not working because they had, or were caring for someone who had, Covid, jumped by about 1 million to about 4 million in September from August. This was roughly offset by a decline in those not working because they were caring for children. 
Silver Linings
The discouraging September payroll gain was mitigated a bit by upward revisions to July and August of 169,000 jobs, combined. The Bureau of Labor Statistics’ survey of households found a much larger employment gain than its survey of employers: 526,000 vs. 194,000. Sometimes such differences are due to different definitions of employment; for example, someone with two jobs is counted once by the household survey, twice by the payroll survey. That had little effect in September, though. Household employment, adjusted to the payroll definition, still rose 480,000. That, however, came after a 45,000 drop in August. Over the two months, the payroll survey still shows a moderately healthier picture. One big reason September hiring looked so paltry: education. The Labor Department reported that employment in state, local and private educational services fell by almost 180,000 last month. In reality, the sector added almost 1.3 million jobs. The disconnect came in seasonal adjustments. The September back-to-school hiring binge usually results in about 1.4 million new hires. Schools came up short last month, and so did the seasonally adjusted number. In the Labor Department’s words: “Recent employment changes are challenging to interpret, as pandemic-related staffing fluctuations in public and private education have distorted the normal seasonal hiring and layoff patterns.” Even so, the overall hiring slowdown is broader than just education.

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