Jobs Jump in September, but Wage Growth Moderates

The establishment survey showed an increase of 336k jobs in September. The prior two months’ numbers were also revised sharply higher, bringing the average for the last three months to 266k. In spite of the strong job growth, wage growth actually slowed somewhat, with the average hourly wage rising at just a 3.4 percent annual rate over the last three months. This is well below the average for 2018-2019, when inflation was under the Fed’s 2.0 percent target.

In spite of the strong job growth, unemployment remained unchanged at 3.8 percent. After the huge 736k jump in the size of the labor force reported for August, the September increase was a much more modest 90k. These huge fluctuations in monthly changes are largely the result of measurement error. Over the last year, the labor force has increased by 3,310k, an average of 276k a month.

Job Growth Strongest in Sectors Still Hit by Pandemic

Job gains were widely spread across sectors, but the largest gains were in the sectors that took the biggest hit from the pandemic. The category of leisure and hospitality added 96k jobs, accounting for almost 30 percent of the month’s job gains. Employment in this category is still down by 184k (1.1 percent) from its pre-pandemic peak.

Within this category, restaurants added 60.7k jobs, putting employment above its pre-pandemic peak for the first time. The arts, entertainment, and recreation sector added 19.3k jobs, which also put it above its pre-pandemic peak. The hotel sector added 15.6k jobs, but employment is still 217k (10.3 percent) below its pre-pandemic peak. This is likely due to the huge growth in Airbnb and other vacation rentals over the last four years.

State governments added 29k jobs, while local governments added 38k. Employment in state governments is still down by 21k (0.4 percent) from pre-pandemic levels, while employment by local governments is down by 85k (0.6 percent) from pre-pandemic levels. There will likely be some more catchup in these sectors, but a drop in relative pay and deterioration in working conditions, notably in teaching, has made public sector jobs less attractive.

Job Growth in Cyclically Sensitive Construction and Manufacturing Still Solid

Since construction and manufacturing have always been the hardest hit sectors in a downturn, those expecting a recession always look to employment trends in these two sectors. Both are still adding jobs at a respectable pace. Construction added 11k jobs in September, while manufacturing added 17k. Even housing construction added 12.6k jobs.

The one cyclical sector that has shown job loss is credit intermediation, which has been hit by the decline in home purchases and crash of the mortgage refinancing boom. This sector lost 7.5k jobs last month. Employment is now down 61.6k (2.3 percent) from its peak in April of 2021.

Job Surge in Health Care Slows

The health care sector added 40.9k jobs, after adding an average of 68.6k jobs over the prior three months. This is still more than twice as fast as the average growth in the years before the pandemic. Nursing homes added just 2.4k jobs, while child care centers added 1.1k jobs. Employment in these two sectors is down by 154.2k (9.7 percent) and 39.4 (3.8 percent), respectively, from pre-pandemic levels.

Index of Aggregate Hours Rises 0.2 Percent

Hours growth had been lagging employment growth somewhat, as the length of the average workweek had been getting shorter. These are roughly in line for September, with the index of aggregate hours rising at a 1.5 percent annual rate in the third quarter. With GDP growth likely to be over 3.0 percent for the quarter, this would imply another quarter of strong productivity growth, although a sharp rise in self-employment (mostly incorporated self-employed) will dampen reported growth in the quarter.

Women Again Account for More than Half of Payroll Job Growth

The growth in payroll employment for women was 185k in September, putting them at 49.8 percent of total payroll employment. It will likely be several more months until they hit their peak share, which was just over 50.0 percent in some months before the pandemic.

Unemployment Rate Unchanged at 3.8 Percent

The extraordinary jump in the size of the labor force reported for August raised the possibility that the 0.3 percentage point jump was an anomaly. With the September survey showing the same number, it appears that the rise is real. This rise does seem difficult to reconcile with the extraordinary pace of job growth reported in the establishment survey.

While the overall labor force participation rate (LFPR) was unchanged, the labor force participation rate for prime-age men (25-54) rose to 89.6 percent, tying its pre-recession peak. It was unchanged for prime age women.

There was an increase of 0.1 pp in the unemployment rate for men over age 20 to 3.8 percent, coupled with a decline of 0.1 pp to 3.1 percent for women. This is the largest gap between men’s and women’s unemployment rates since September of 2013. (There were much larger gaps the other way, with women’s rate exceeding men’s rate, at the peak of the pandemic.)

Unemployment Due to Quits Edges Lower

The share of voluntary job leavers in the unemployed edged down to 12.7 percent. This is well below the peak of 15.7 percent hit earlier in the recovery. It is also below peaks above 15.0 percent reached in 2019 and 2000.

The duration measures of unemployment also increased in September, with the median duration of unemployment spells rising 0.5 weeks to 9.2 weeks, and the average duration up 1.1 weeks to 21.5 weeks. The number of people working part-time involuntarily fell by 156k, reversing most of the jump in August, however, the figure is still above lows hit last fall.

Mixed Story in September Jobs Report

The job growth reported for September was far above virtually all predictions. The prior two months’ numbers were also revised up by 119k. This goes against the general perception that job growth is slowing.

However, the slower wage growth reported in recent months is certainly not consistent with an overly tight labor market. Also, there is nothing in the household survey that would suggest the labor market is continuing to tighten. The unemployment rate, while still very low by historic standards, is 0.4 pp above its low hit in the spring. The lengthening of the duration of unemployment spells also is not consistent with a tightening of the labor market, nor is the fall in the share of voluntary job leavers among the unemployed. It would be unfortunate if the Fed overreacted to this report with further rate hikes.