The latest Payrolls Report showed an increase of 235,000 versus the 733,000 forecast by economists. While disappointing, this topline result obscures three major items:
- The Household Survey showed gains of 509,000. In basic terms, the Household Survey involves calling people and asking if they are employed. The survey is used to establish the Unemployment Rate, while the payrolls report is generated by the Enterprise Survey, which is consists of calling to businesses and asking about the number of people on their payrolls. These figures differ due to people holding multiple jobs as well as who responds to the survey.
- The Unemployment Rate fell to 5.2% from 5.4% in July as result of the 509,000 job gains. In the last Fed Summary of Economic Projections, the Unemployment Rate median forecast was 4.5% for year-end 2021. August’s decrease, provided it continues, is in line with achieving that forecast. Additionally, the underemployment rate (widest measure) fell to 8.8% from 9.2% in July and, while that’s higher than February 2020, it is consistent with levels seen in 1Q17.
- Wages were robust, increasing by 0.6% MoM and 4.3% YoY, above forecasts.
Two items led to the payrolls miss:
- Government jobs were -8,000 on the month, against forecasts that school re-openings would increase education positions at the state and local level. In 2019, for example, Government payrolls increased by 56,000 in August.
- Leisure and Hospitality was flat despite Job Openings and Labor Turnover Survey (JOLTS) data showing 1.65 million job openings in the sector as of the end of June. This is a sector that has averaged 297,000 in payroll gains per month in 2021. It’s difficult to assess if this is a COVID-related weakness as the reopening categories of Amusement, Gambling and Recreation, as well as Accommodation, saw gains, while weakness was seen in restaurants and bars, falling by 41,500 jobs.
Finally, as result of the 509,000 employment increase, the “lost jobs” number relative to before the pandemic is down to 5.6 million versus 8.9 million to start the year and 7.1 million at the end of 2Q21.
The labor recovery will likely be choppier than in past recoveries given skills mismatches, supply chain issues and geographic considerations. However, on the strength of Households, the increase in wages and decrease in the unemployment rate, the Federal Reserve is unlikely to change course, with the announcement of tapering this year and actual reductions in bond purchases beginning sometime in 4Q21 or 1Q22.