Jobs -> The recovery regaining its pace
Job gains in October beat expectations, with positive upward revisions to previous months as well. The labor market is back on track, though arguably it had never really gotten off track given these updated estimates of August and September numbers.
On a non-seasonally adjusted basis, the net number of payrolls added in October was much higher than even the elevated average of all the Octobers of the 10 years preceding covid. If the recovery can maintain a pace of adding half a million jobs every month on a seasonally adjusted basis, it won’t be very long until (likely sometime in mid-2022) when the Fed believes the labor market has returned to something like full employment.
The report was strong across the board. A 0.3%pt increase in the prime-age employment to population ratio looks great after the ratio flatlined over the couple of months preceding October.
| Apr-21 | May-21 | Jun-21 | Jul-21 | Aug-21 | Sep-21 | Oct-21 | |
|---|---|---|---|---|---|---|---|
| NFP growth, k | 269 | 614 | 962 | 1,091 | 483 | 312 | 531 |
| UR, % | 6.1 | 5.8 | 5.9 | 5.4 | 5.2 | 4.8 | 4.6 |
| Prime-age UR, % | 5.5 | 5.2 | 5.5 | 4.9 | 4.7 | 4.4 | 4.2 |
| U6, % | 10.4 | 10.2 | 9.8 | 9.2 | 8.8 | 8.5 | 8.3 |
| LFPR, % | 61.7 | 61.6 | 61.6 | 61.7 | 61.7 | 61.6 | 61.6 |
| Prime-age LFPR, % | 81.3 | 81.3 | 81.7 | 81.8 | 81.8 | 81.6 | 81.7 |
| EPOP, % | 57.9 | 58 | 58 | 58.4 | 58.5 | 58.7 | 58.8 |
| Prime-age EPOP, % | 76.9 | 77.1 | 77.2 | 77.8 | 78 | 78 | 78.3 |
| PTER, % of payrolls | 3.5 | 3.5 | 3.1 | 2.9 | 2.9 | 2.9 | 2.9 |
| Long-term UR, % | 2.6 | 2.3 | 2.5 | 2.1 | 2 | 1.7 | 1.4 |
| AHE, % m/m | 0.7 | 0.5 | 0.4 | 0.4 | 0.4 | 0.6 | 0.4 |
| AHE, % y/y | 0.3 | 1.9 | 3.7 | 4 | 4.1 | 4.6 | 4.9 |
| Source: BLS, @benbakkum. |
Transportation and warehousing as well as professional service jobs stand out industries where employment continues to grow at a strong pace, even though they’re already well above pre-pandemic levels of employment. Leisure and hospitality jobs gained more jobs in October than during the prior two months, suggesting the effects of the Delta variant may be wearing off.
The chart below shows the strong pace of this recovery relative to other recessions.
If the average job growth of the last three months continues at the same pace, the total number of jobs would fully recover to where it would have likely ended up had the pandemic not occurred around the beginning of 2024. In many ways that would be an even tighter labor market than before the pandemic as the population has aged and a large number of workers have retired in the intervening period.
An aggregate measure of labor market conditions, the Blanchflower-Levin employment gap, shows that slack continues to decline, with underemployment (a major source of slack during the last cycle) having quickly disappeared. My interest continues to be in how long the participation gap will linger during this cycle.
Note: the unemployment gap is the difference between the unemployment rate and the non-accelerating inflation rate of unemployment (NAIRU). The participation gap is the difference between the labor force participation rate (LFPR) and the CBO’s estimate of the potential LFPR. The underemployment gap is the difference between the number of employees working part-time for economic reasons as a percentage of the labor force, adjusted for the difference in the average number of hours worked by part-time and full-time employees, and the 1994-2007 average of this calculation.
