This Friday, the Bureau of Labor Statistics will release the October jobs report, giving us a look at the labor market as the recent wave of the COVID-19 Delta variant begins to abate. Labor market progress slowed dramatically in August and September, but with the Delta wave receding, Friday’s report should show a reacceleration in the recovery. Labor demand remains red hot and the disruption from the pandemic is diminishing. October’s jobs report is likely to show a labor market with plenty of gas left in the tank, ready to fuel the recovery as the public health situation improves.
Here are three things I’ll be looking for:
- Growing payroll gains: Payroll gains are likely to accelerate modestly from only 194,000 jobs added in September. The easing of the Delta wave will reduce disruptions to schools and encourage businesses to resume hiring. The latest wave has not completely receded though, so gains are still likely to be muted compared to the summer’s hot jobs growth.
- Small unemployment decline: The unemployment rate is likely to continue to decline to 4.7 percent. Labor force participation fell slightly in September, predominantly driven by women leaving the labor force. With school reopenings, labor force participation may improve slightly in October.
- Labor shortages continue: School reopenings, the expiration of enhanced unemployment benefits and shrinking savings may push some Americans back into the workforce, but not enough to meet high labor demand. Employers are likely to continue to raise wages in shortage-affected sectors, though at a slower pace than during the summer.
Expiration of Unemployment Benefits Unlikely to Unleash Job Gains
The expiration of federal enhanced unemployment benefits on Labor Day showed little impact on September jobs growth, but the Delta variant was likely the dominant factor behind September’s slow jobs growth. With the Delta wave fading, will October start to show the impact of benefits expiring?
Job search activity, according to Google Trends, appears fairly stable in September and October, compared to the normal seasonal declines from years past. As of October 12, job search was 8 percent higher than previous years when using a seasonal trend indexed to August 1. In the chart below, job search in 2021 (the dark blue line) begins pulling away from the historical seasonal trend (light blue line) in mid-August with the gap slowly widening through October.
Seasonal trends are very volatile, which makes it difficult to precisely estimate the impact, but even a 10 percent lift in job search would have a muted impact on payroll gains. For example, if job gains in September were 10 percent higher, payroll growth would have been 213,000 instead of 195,000—hardly the blockbuster growth that advocates of the expiration were hoping for.
Even if the expiration of enhanced unemployment benefits and drawdown of savings push more Americans back to work, there is unlikely to be a flood of workers, and more likely a steady but moderate flow. Employers hoping for a policy silver bullet to make hiring easy are likely to be disappointed.
Seasonality In the Age of COVID-19
The pandemic has thrown normal seasonal patterns into disarray and made the seasonal adjustment of economic data more challenging. But now that we’re over a year into the pandemic, patterns from last year can help inform what the October jobs report may look like.
Over the course of the pandemic, the education sector in particular has been subject to wild seasonal swings due in part to the scale of the industry’s normal seasonal patterns. The initial layoffs in education at the beginning of the pandemic have resulted in schools running on leaner workforces, so end-of-school-year layoffs and start-of-school-year hiring have been smaller than previously anticipated by the seasonal adjustment. As a result, the summers of 2020 and 2021 saw seasonally adjusted job gains, while fall 2020 saw seasonally adjusted job losses.
The same pattern appeared in September with large, seasonally adjusted job losses as hiring at the beginning of the school year was muted. If the pattern holds, the seasonal adjustment is likely to contribute tens of thousands of more job losses from topline payroll growth in October. Delayed school reopenings that push hiring into October may help mitigate job losses, but likely not enough to push education payrolls into the black.
Table: Education Payroll Gains during the Pandemic
Previously, some had hoped that the fall would unlock jobs growth with schools reopening and enhanced unemployment benefits expiring. The Delta variant disrupted those optimistic projections in a reminder that forecasting is particularly challenging while the pandemic is still raging. Similarly, the lack of jobs growth despite the expiration of unemployment benefits is a reminder that there is no silver bullet solution that will suddenly unleash a flood of workers back into the labor force.
Ultimately, the Delta wave is not in the rearview mirror yet. While cases are trending downward, they are still significant. On top of the latest wave, seasonal factors in education and leisure & hospitality are likely to keep job gains muted. While the recovery is likely to reaccelerate in October, jobs growth will still be muted as long as the pandemic continues to hold back the economy.