10/08/2021 | Press release | Distributed by Public on 10/08/2021 11:46
This morning's jobs report from the Bureau of Labor Statistics painted a mixed picture of the ongoing labor market recovery. Total nonfarm payroll employment rose by 194,000 in September, down from August's upwardly revised pace of 366,000. However, in our view the continuing abnormal seasonal pattern of hiring in the education sector meant this report was somewhat better than it may have first appeared. Hiring in these sectors, while positive on a non-seasonally adjusted basis, was much lower than would be expected for September, resulting in seasonally adjusted job losses. This abnormal seasonal pattern has been distorting the overall job growth picture for several months. The rise in the ISM Services Index highlights the continual expansion of the service industry, supported by increases in retail trade, leisure hospitality, and professional and business services employment, as consumer activity continues to return, though the increase in the prices paid index also highlights that the service sector continues to face pricing pressures. Businesses are also facing increased wage pressures, as firms continue to try to attract workers, a trend which will likely need to continue in order to see the labor-force participation rate rise back toward its pre-pandemic level.
Federal Reserve Chairman Powell said at his most recent press conference that a good employment report was all that was needed to begin tapering. Though this report was probably weaker than they would have preferred, certain aspects of the report were likely healthy enough that we believe the Fed will likely announce the onset of the tapering of their asset purchases at the November meeting.
The increase in service sector activity as measured by the ISM Services Index is somewhat positive for consumer spending in the third quarter, as is the rise in revolving credit outstanding. However, offsetting the positivity was the further decline in September light vehicle sales, as a lack of semiconductors continues to weigh on the inventory of autos available for sale. Given ongoing issues with auto production, we will likely need to downgrade our outlook for consumer spending for the remainder of the year, and thus our outlook for overall economic growth. The widening of the trade deficit in August will also likely lead to lower growth in the third quarter. While spending has shifted somewhat back toward services as the economy reopens, labor scarcity in the service industry, as well as ongoing COVID concerns, has dampened the pace of recovery in the service sector. This has helped maintain heightened demand for goods, which also weighs on net exports, and thus GDP.
Economic and Strategic Research Group
October 8, 2021
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