This Friday, the Bureau of Labor Statistics will release the September jobs report, which will likely show the labor market impact of the peaking wave of the Delta variant of COVID-19. The report follows a particularly concerning August report where jobs growth slowed to just 235,000. Previously, many economists had hoped that September school reopenings would unlock parents to return to the workforce, but the resurgence of the pandemic seems to have dashed those hopes. September’s jobs report is likely to show a continuing but sluggish labor market recovery weighed down by Delta.
Here are four things I’ll be looking for:
- Muted payroll gains: Payroll gains are likely to rebound modestly from their weak August numbers. The complete shutdown of hiring in leisure & hospitality with precisely zero jobs added in August drove last month’s slowdown, but demand for workers persists. With the Delta surge now on the downswing nationally, hiring may start to reaccelerate, though it’s unlikely to match summer job growth levels immediately.
- Modest unemployment decline: The unemployment rate is likely to decline to 5.1 percent. Temporary layoffs increased slightly in August as the Delta wave spread, but continuing improvement should pull temporary layoffs and unemployment lower. Additionally, the Delta wave may hurt labor force participation, driving down unemployment. If unemployment falls, it will be important to watch if the Black unemployment rate reverses its jump in August. More consistent progress for Black unemployment is needed to mitigate the risk of a K-shaped recovery.
- Restaurants and schools: In September, the end of summer typically boosts hiring in schools while restaurants and hotels, by contrast, contract their payrolls. This September may feature muted seasonal trends, however, as school reopenings are disrupted by Delta but demand in leisure & hospitality remains sky high.
- Unabated labor shortages: Even if Delta does reduce labor demand, the number of job openings is still at record highs. Job growth may slow, but tight conditions are likely to persist. Employers are likely to continue to raise wages in shortage-affected sectors, though at a slower pace than previous months.
Expiration of Unemployment Benefits Unlikely to Impact September Report
September’s jobs report will be the first after the Labor Day expiration of federal enhanced unemployment benefits. However, the September report is unlikely to show a significant impact from the expiration.
The reference week for the September jobs report is the week of September 12, so only one week after the expiration of the benefits. On top of that, even if job search activity increased, it would take time for the unemployed to actually find and start jobs. Additionally, with elevated savings from government aid having provided a financial buffer, it may take longer for any incentive effects from the expiration to prod Americans to return to work.
Job search activity, according to Google Trends, does seem to be slightly elevated compared to the normal seasonal trends in past years. Normally, job search activity declines at the end of the summer, as shown by the light blue line in the graph below. This year, though, job search activity remained elevated through the end of August, as shown by the dark blue line.
Relative to August 30 (the last Monday before Labor Day), there is no difference in job search activity. But if you believe Americans were searching for jobs in advance of the expiration, it may be more appropriate to compare the level of job search activity to earlier in August. Relative to August 12 (the reference period for the last jobs report), job search activity is 6 percent higher. This is an imprecise estimate because of the volatility in job search trends and the difficulty in interpreting data around the Labor Day holiday. But taken at face value, a modest increase in payroll growth seems possible in coming reports.
Ultimately, the September jobs report will be examined for evidence of the impact of the unemployment benefits expiration, whether in faster jobs growth in leisure & hospitality or increased job finding rates. However, it’s still too early for the impact to be fully analyzed. September’s report will not be the final word in the debate.
As we head into the fall, the resumption of school reopenings may help pull more workers into the labor force. Similarly, if expiration of UI benefits does have a positive impact, we would expect it to begin showing up in the fall and early winter.
Conversely, the ongoing pandemic continues to threaten labor market recovery. Last winter’s COVID-19 wave raises the specter of another lost winter and further thwarting of the recovery. Additionally, repeated supply chain disruptions may threaten the holiday season relied upon by retailers and seasonal workers alike.
To some extent, the September report is backwards-looking—a window back to just a few weeks ago when the trajectory of the latest wave of the pandemic was less clear. Now, as Delta cases appear to be waning, the labor market is more likely to resume its recovery in the coming months, but the outlook remains uncertain so long as the pandemic is not under control.