October 04, 2024
The September employment report was far stronger than generally expected. The unemployment rate edged down to 4.1 percent, while the establishment survey showed the economy adding 254,000 jobs. In addition, the jobs numbers for the prior two months were revised up by 72,000.
This report should end any fears that the economy was heading for a recession, as some analysts had feared based on the earlier increase in unemployment. It also means that we have reversed the trend of gradually rising unemployment. While the rise from 3.7 percent in January to 4.3 percent in July was worrying, the drop now to 4.1 percent suggests that we do not have a gradually weakening labor market, but rather one that remains robust.
Unemployment Drops More Sharply for Black and Hispanic Workers
While the overall drop in unemployment for September was minimal, the unemployment rate for Black and Hispanic workers both fell by 0.4 pp to 5.7 percent and 5.1 percent, respectively. This is still well above the all-time lows hit earlier in the recovery of 4.8 percent and 3.9 percent, respectively, but considerably below peaks hit in the last two months. These data are erratic, but there is no clear upward trend in unemployment for these groups of workers. The unemployment rate for white workers dropped 0.2 pp to 3.6 percent.
Employment-to-Population Ratio Remains at Post-Pandemic Peak
The prime age (ages 25 to 54) employment-to-population ratio stayed at its post-pandemic peak of 80.9 percent, 0.3 pp above pre-pandemic peak for the third consecutive month. It edged up 0.1 pp for men to 86.4 percent, which is still 0.3 pp below its pre-pandemic peak. For women it edged down 0.1 percent to 75.5 percent. This is slightly below the all-time high of 75.7 percent reached in May, but still 0.8 pp above its pre-pandemic peak.
Unemployment for 20-24 Year-Olds Drops 0.8 pp
There had been some concern about rising unemployment among young people, but the September data should help alleviate these worries. The unemployment for 20-24 year-olds fell 0.8 pp to 7.0 percent, the same as its year ago level. Again, the monthly data are erratic, but this does reverse the upward trend we had been seeing.
Job Growth in Establishment Survey Far Exceeded Expectations
Most analysts had been projecting job growth comparable to the previously reported 142,000 for August. Instead, the 254,000 we saw for September is well above the 203,000 average for the past 12 months. With the upward revisions to the July and August data, the average for the last three months is now 186,000.
It is not clear what rate of job growth is needed at this point to keep pace with the growth of the labor supply. Before the pandemic, the Congressional Budget Office predicted job growth would average just 20,000 a month in 2024 as the retirement of the baby boom cohort is hitting its peak.
The more rapid job growth in the last three years was driven largely by the unexpected wave of immigration. With immigration sharply curtailed earlier this year, we should expect to see a slowing in job growth, but the timing of this slowing is not clear. Obviously, we have not seen it yet.
Job Gains Broadly Based, Led by Restaurants, Health Care, and Construction
Most sectors added jobs in September, but the gains in restaurants, health care, and construction – 69.4k, 45.2k, and 25.0k, respectively – accounted for more than half of total employment growth in the month. While the job growth in health care is still strong, it is below its average of 56k over the last year. Construction growth is mostly in non-residential specialty trade construction, driven by the boom in factory construction, but residential is showing modest gains.
The government sector added 31.0k jobs, with 16.0k at the local level and 13.0 at the state level. Retail added 15,600 jobs. Manufacturing lost 7.0k jobs after losing 27k jobs in August. However, employment is little changed over the last year, down by 37k. Employment in the auto sector fell by 6.5k in September, but is still 9.8k above its year ago level.
Index of Aggregate Hours Edges Downward, Likely Meaning Another Strong Quarter for Productivity
A slight drop in the length of the average workweek led to a 0.1 pp decline in the index of aggregate weekly hours. The index of aggregate hours for the quarter was little changed from the second quarter. With GDP growth likely coming in at close to 2.5 percent, this should put productivity growth at close to 2.0 percent for the third quarter.
The upward revisions to GDP last week, coupled with the downward preliminary benchmark revisions to employment growth reported in August, puts productivity growth since the pandemic at close to 2.0 percent. It looks like this speedup in growth is continuing into the current quarter.
Wage Growth Picked Up Modestly
The annualized rate of hourly wage growth over the last three months has been 4.3 percent, slightly above its 4.0 percent rate over the last year. This is somewhat faster than the pre-pandemic pace, but if productivity growth is at 2.0 percent, this is close to a pace that would be consistent with the Fed’s 2.0 percent inflation target.
Also, it is important to note that the revised GDP data show that the profit share in the second quarter remains close to its pandemic peak, which is well above the pre-pandemic share. This means that wages have considerable room to increase at the expense of profits rather than being passed on in higher prices.
Another Very Solid Employment Report
It is hard to find much not to like in this jobs report. Most importantly, the trend towards rising unemployment from earlier in the year has been reversed. While it would be desirable to see a lower unemployment rate, 4.1 percent is low by any historical standard. Also, the reported unemployment rate for Black and Hispanic workers fell sharply, as did the unemployment rate for young workers. Involuntary part-time employment fell by just over 200,000 in September, reversing most of the August increase, but we are still 555,000 above the level a year ago.
As it stands, we have a labor market with low unemployment, strong job growth, and wage growth that is outpacing inflation at a healthy pace. This continues to be the best labor market since the 1960s.
