Breitbart Business Digest: Actually, the September Jobs Number Was Really Strong

Nabobs Natter Negatively About September’s Jobs Report

While there’s been a lot of chatter over the past few days about the September jobs figures being weaker than they looked, the numbers do not really support the negative interpretation.

The Labor Department reported on Friday that 336,000 workers were added to employer payrolls in September, which was far more than even the most bullish analysts expected. Importantly, the Labor Department also revised up the estimates for the prior two months, indicating even stronger employment gains than previous reports indicated.

The combined revisions added 119,000 jobs to the earlier reports. That figure, however, understates how much stronger the jobs figures are compared with expectations. Combined with the September beat, the economy is now employing 285,000 more workers than economists expected it would be before the report came out on Friday.

The revisions change the underlying trend for job growth. If the numbers had remained unrevised and September had come in at the consensus forecast of 170,000, the three-month average gain would be for payroll growth of 171,333. With the revision and the better-than-expected September figure, the three-month average is 266,000. That is the highest since March.

The economy only needs to generate around 75,000 to 100,000 jobs a month to keep up with population growth. Employers are growing their payrolls around three times as fast as that.

These figures are painting a very different picture of the labor market than what we got just a couple of months ago. The July jobs report, which was published in early August, showed nonfarm payrolls rising just 187,000, below the estimate of 200,000. The revised data shows we added 236,000, so what looked like a disappointing month was actually stronger than expected.

The July report also contained downward revisions of 49,000 to the previous two months (May and June) resulting in the three-month moving average slowing from 227,000 in April to 218,000 in July. The following August report revised July all the way down to 157,000 and dropped June down to 105,000, driving the three-month moving average down to 181,000.

So we’ve gone from downward revisions and a series of below-expectation reports to better-than-expected and upwardly revised reports. This should cause analysts to rethink their expectations for a softening labor market.

Misreading the Other Jobs Report

So what’s driving the negativity?

Some analysts are claiming that the jobs added were low quality—and therefore not a sign of labor market strength. Many are pointing to the apparent growth of part-time workers in September and the apparent contraction of full-time workers as evidence that the jobs figures are weaker than they looked.

The establishment survey that gives us the monthly payroll growth figures that garner the headlines does not ask whether jobs are full-time or part-time. It does ask, however, about the average weekly hours of all employees. This was unchanged in September compared with the previous month at 34.3. And while average hours are down from the highly-elevated post-pandemic figures (when employees were clocking in extra time because their employers were having trouble staffing up to meet the surge in demand), it is exactly the long-term average. If we exclude the post-pandemic surge, it’s actually slightly above average.

This suggests that the September hiring surge cannot be written off because it is comprised of part-time work. If that were true, we’d expect at least some downward pressure on average hours worked.

The data showing a rise in part-time workers comes from the household survey, from which we get our headlines about the level of unemployment and the unemployment rate. Where the establishment report is based on surveys of employers reporting on their payroll numbers, this survey is based on surveys of households reporting on the employment status of people living there. It is a much smaller survey with a much larger margin of error than the establishment survey.

The household survey shows that the number of part-time workers rose from 27.185 million to 27.336 million, an increase of 155,000. The number of full-time workers fell from 134.189 million to 134.167 million, a decline of 22,000. Given the size of the survey and the margin of error, these changes are not statistically significant. The changes between full-time and part-time are just noise.

Importantly, because the 336,000 addition to the payroll comes from the establishment survey and the 155,000 addition to the number of part-time workers comes from the household survey, these cannot be directly compared. They’re based on different questions asked of different sets of respondents.

The analysts focusing on the household survey are also overlooking the fact that it shows a slight downtick in the number of people working part-time “for economic reasons.” This is the category of people who would like to work full-time but cannot because their employer did not need them full-time or they could not find a full-time job. The increase in part-time workers comes entirely from people working part-time for “non-economic reasons,” which includes people who do not want full-time work for a variety of reasons. Adding these workers to payrolls is still genuine employment growth. (Note: these changes are also not considered statistically significant in the household survey.)

Job Growth Was Broad-Based

Some have argued that the job growth in September was quite narrow. That’s just not true. SMBS chief economist Joe Lavorgna pointed out in a recent note to the bank’s clients that the diffusion index score of 64 percent means job gains were broad based.

It is true, however, that job growth was led by what analysts call “high-touch services sectors,” mainly education and health and education, leisure and hospitality, and other services. These are sectors that were lagging behind the rest of the labor market in returning to prepandemic levels and have been playing catch up this year. For the year, they’ve accounted for slightly more than half of nonfarm payroll growth.

This should not be seen as a sign of weakness for the overall economy given the extremely low level of unemployment. Rather, it should be seen as an economy that is at full employment and still adding jobs in weaker segments. Bars and restaurants, for example, only recently returned to prepandemic levels of employment.

What’s more, excluding these three sectors, payrolls rose by 64,000 in September. That’s the first increase in the non-high touch sectors since May.

There is some room for grumbling about government hiring inflating jobs numbers. A big portion of the increase was local and state governments expanding the ranks of “public servants.” But even if we exclude those, the private sector added an impressive 263,000 jobs.

Does this mean a recession is off the table? Not necessarily.

“It is relatively common for the labor market to experience large payrolls either shortly before or at peaks in economic activity. It has happened in five out of the last 10 business cycles,” Lavorgna pointed out in a note helpfully titled “Beware Late Cycle Job Gains.”

The nonfarm payrolls figures are lagging indicators, usually telling us what has been happening in the economy rather than what will happen. Many of the leading indicators tell us a recession still looms.

But they’ve been telling us that for a long, long time now.