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Was a paltry increase in U.S. hiring in August just a speed bump or a sign of bigger problems with the economy? We might be about to find out.
Wall Street expects the Labor Department’s employment report for September, due Friday, to show that hiring more than doubled to a half-million new jobs. Yet a surprising labor shortage of sorts threatens to stymie businesses and retard the economic recovery.
Here is what to watch in Friday’s critical U.S. jobs report.
Faster hiring
Economists polled by The Wall Street Journal predict 500,000 new jobs were created in September, more than doubling a meager 235,000 gain in August.
Such a gain would ease anxiety among investors and keep the Federal Reserve on track to announce plans in November to scale back stimulus for the U.S. economy.
There’s no doubt companies want to hire and many are even offering higher pay. Most can’t produce enough goods and services to keep up with demand and job openings are at a record high.
The reopening of schools and the end of extra federal unemployment benefits may have encouraged some people to return to work in September. Falling coronavirus delta cases also helped.
Keep an eye on updated August jobs figures. The number of new jobs created in the last full month of summer usually gets revised higher. Why ? Lots of businesses are late to report their employment levels to government bean-counters because they are on vacation.
Is labor out in force?
Perhaps the second most important number in the monthly U.S. employment report is how people are entering the labor force. Businesses can’t fill a lot of jobs if more people are aren’t applying in the first place.
The size of the labor force is determined by the number of people working or looking for work. It shrank by 6.4 million to 156.5 million early in the pandemic.
The labor force has since risen to 161.5 million, but it’s increasing very slowly.
That’s a big problem. Roughly 6 million more people would likely have jobs now had their been no pandemic at all, factoring in the normal increase in the labor force each year.
The U.S. economic recovery could be stunted unless more people go back to work.
Unemployment rate
Unemployment has been falling steadily this year and that’s obviously a good thing, but the official rate is misleading. The true rate of unemployment is likely several points higher because of distortions caused by the pandemic.
Economists forecast the jobless rate to slip to 5.1% in September from 5.2% — down two-thirds from a pandemic peak. But the real rate is probably close to 7%, they say.
Back in service
The apparent slowdown in hiring in August was concentrated in leisure and hospitality jobs at restaurants, hotels and the like. They added zero jobs, compared to average gain of 364,000 in each of the prior four months.
Economists suspect the delta variant was largely to blame. Americans cut back on travel and going out. But with delta cases fading, there’s a good chance of big rebound in hiring.
Another wild card: Local and state education. A larger than normal increase in employees returning to school could exaggerated employment gains in government.
Wages and salaries
A rapid increase in wages was expected to slow as more people in lower-paying industries returned to work. Those were the kinds of businesses that suffered the biggest job losses during the pandemic.
Yet wages are still going up and they could rise again in September. Average hourly pay rose 4.3% in the 12 months ended in August vs. a smaller pre-pandemic average of 3%.
Higher wages reflects the willingness of companies to pay more at a time when labor is scarce, but if they keep rising, it’s likely to feed into a broader U.S. trend of higher inflation.
