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Parsing the September Employment Release

Summary:
Overall and private nonfarm payroll (NFP) employment surprised on the downside — but the fact that private missed by a smaller amount suggests that the slowdown is a little less pronounced than indicated by the headline number. First consider private vs. total NFP, as well as private NFP hours: Figure 1: Nonfarm payroll employment (black), private nonfarm payroll employment (tan), and aggregate weekly hours of private nonfarm payroll employment (pink), all seasonally adjusted, in logs, 2020M02=0. Source: BLS, and author’s calculations. The slowdown was much less pronounced for private NFP, hinting at (the oft mentioned) problems with seasonal adjustment issues for government employment, particularly education-related. Furthermore, private hours continued to rise fairly smartly, at 6.2%

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Overall and private nonfarm payroll (NFP) employment surprised on the downside — but the fact that private missed by a smaller amount suggests that the slowdown is a little less pronounced than indicated by the headline number.

First consider private vs. total NFP, as well as private NFP hours:

Parsing the September Employment Release

Figure 1: Nonfarm payroll employment (black), private nonfarm payroll employment (tan), and aggregate weekly hours of private nonfarm payroll employment (pink), all seasonally adjusted, in logs, 2020M02=0. Source: BLS, and author’s calculations.

The slowdown was much less pronounced for private NFP, hinting at (the oft mentioned) problems with seasonal adjustment issues for government employment, particularly education-related.

Furthermore, private hours continued to rise fairly smartly, at 6.2% m/m annualized (and at 3 month annualized changes). (h/t Jason Furman and Powell, who cites the advice of Steven Braun).

Additional insight into the role of the government sector can be seen in a decomposition of net job losses relative to NBER peak month (2020M02):

Parsing the September Employment Release

Figure 2: Employment relative to 2020M02 for manufacturing (blue), accommodations and food services (tan), government (green) and all other nonfarm payroll employment, in thousands, seasonally adjusted. Source: BLS and author’s calculations.

One of the widening bars is government employment. And accommodation and food services fails to shrink, indicating stalled recovery. That latter definitely points to the impact of the delta variant on high contact services consumption.

Finally, wages continue to rise in nominal terms, possibly in real terms (we have September average hourly wages, but not September CPI). In any case, it’s important to remember that the average does not control for composition effects. A bit more information is provided by a disaggregated look at the extremes, i.e., manufacturing (goods producing) vs. high contact services (leisure and hospitality services). In all cases, these are production/non-supervisory numbers.

Parsing the September Employment Release

Figure 3: Real average hourly earnings in private nonfarm payroll employment (black), in manufacturing (red), and in leisure and hospitality (teal), CPI deflated, in logs 2020M02=0. September observations deflate using Cleveland Fed nowcast as of 10/10. All series pertain to production/non-supervisory workers. NBER defined recession dates shaded gray. Sources: BLS via FRED, Cleveland Fed, NBER and author’s calculations.

Clearly, leisure and hospitality services have surged far ahead of goods production, after suffering a big decline. That being said, real hourly earnings in leisure and hospitality are only 2.9% higher than 2014-19 trend. Another perspective on how real wages have evolved is gained by looking at actual levels (rather than normalized) of real wages.

Parsing the September Employment Release

Figure 4: Real average hourly earnings in private nonfarm payroll employment (black), in manufacturing (red), and in leisure and hospitality (teal), 2014-19 log-linear trend (gray), all CPI deflated to 2020$. September observations deflate using Cleveland Fed nowcast as of 10/10. All series pertain to production/non-supervisory workers. NBER defined recession dates shaded gray. Sources: BLS via FRED, Cleveland Fed, NBER and author’s calculations.

More on the implications of the release for assessing overall economic activity here. A comprehensive examination by Furman and Powell here. See also Calculated Risk.

Menzie Chinn
He is Professor of Public Affairs and Economics at the University of Wisconsin, Madison

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