Lackluster job growth amid Delta and labor shortages

Commentary on today’s U.S. Bureau of Labor Statistics Employment Situation Report

Today’ jobs report showed the second consecutive month of lackluster job growth, reflecting Delta’s impact on the economy and a US labor market that remains tight.

Nonfarm payroll employment increased by 194,000 in September, after an upwardly revised increase of 366,000 in August. The published unemployment rate ticked down from 5.2 to 4.8 percent, and the true rate, after adjusting for the misclassification error, declined from 5.5 to 4.9 percent. Overall, jobs still number 5 million below February 2020 levels, with women representing 57.5 percent of these employment losses. The labor force participation rate ticked down from 61.7 to 61.6 percent in September.

Only 74,000 jobs were added in the leisure and hospitality industry, with food services and drinking places adding just 29,000 jobs. This weakness shows how the pandemic continues to hamper job growth, especially in the in-person services industries. Jobs were gained in retail trade, construction, and professional and business services. On the other hand, even though schools are reopening, private and government education declined by 179,700 jobs, possibly showing that some schools are not returning to prepandemic employment levels and vaccine mandates are constraining the return of some workers.

While overall job growth was weak for the second consecutive month, peak disruption may be behind us with the number of COVID-19 cases nationally slowly declining. Today’s job numbers were collected in the first half of September when Delta cases were at their peak. If infections continue to decline over the coming months, job growth may pick up again, primarily in the in-person services industries.

The labor market remains tight and labor shortages are perhaps getting even more severe. Average hourly earnings increased 6.0 percent (annual rate) over the past six months and other labor market indicators also show that employers are having difficulties attracting and retaining workers, especially in blue-collar and manual services jobs such as construction, production, transportation, personal care, and food services. This tight labor market with rising wages will feed into price inflation pressures.

Hiring and retention difficulties could persist over the next several months. Some people continue to be fearful of catching the virus and are delaying a return to the labor market. In addition, the federal vaccine mandate for large private employers may be a new barrier to both recruitment and retention as some workers will not be willing to take the vaccine or get regularly tested. On the other hand, the expiration of elevated federal unemployment benefits and school reopenings may lead to more people and working parents returning to the labor market.

As more people get vaccinated, job growth fluctuations should diminish. In addition, more people will become available to work and this should gradually lessen the pandemic-induced labor shortages. However, until now this does not appear to be the case. Employers may experience some relief in hiring difficulties during 2022 but not for long. By the end of 2022 or early 2023, the unemployment rate may have dropped below the prepandemic low of 3.5 percent, leading to a resurgence of regular labor shortages.