October 30, 2024
The July job report – with its weak job growth and rise in the unemployment rate to 4.3 percent – had many analysts worried about the prospect of an imminent recession. The August job report provided a somewhat better picture, with 142,000 jobs and the unemployment rate ticking down to 4.2 percent. The September report – showing 254,000 new jobs, sharp upward revisions to the prior two months’ data, and a 4.1 percent unemployment rate – indicated the labor market continues to be strong, and largely ended any remaining concerns about a recession.
It will be difficult to tell if we are continuing to make progress in the labor market in October due to the impact of Hurricanes Helene and Milton. These storms both hit in time for their impact to be picked up in the BLS surveys. While earlier storms may not have had a noticeable effect on the employment data, that will not be the case this time.
The Storms May Raise Unemployment, Will Increase Involuntary Part-Time
It is not clear how much of a jump we will see in unemployment in October due to the storms, since most of the affected businesses probably did not lay off workers. There was a one-week jump in new unemployment claims, but the numbers involved suggest at most a marginal impact on unemployment.
It is more likely that the impact will show up in a larger number of people reporting that they are working part-time for economic reasons. Many businesses have cut back workers’ hours as they try to get back to normal following the storm. Also, insofar as we do see a rise in unemployment, it will likely be among workers saying that they are on temporary layoffs.
While the 4.1 percent unemployment rate reported for September is low by historical standards, recent history suggests that we can get somewhat lower without triggering inflation. The strong job growth reported for September increases the likelihood that the unemployment rate will be headed lower, even if the storms prevent us from seeing a drop in October.
Job Growth Virtually Certain to Slow
The 254,000 job growth reported for September is almost certainly not a sustainable pace. It is important to remember that the rate of growth of the native-born labor force is very slow right now due to the baby boom cohorts hitting their peak retirement years. Before the pandemic the Congressional Budget Office projected that we would see job growth of just 20,000 a month in 2024.
The more rapid job growth we have sustained over the last two years has been primarily due to the surge in immigration, as the employment-to-population ratio (EPOP) among prime age native born workers is already near a record high. The slowing of immigration will show up in slower job growth, although the timing is uncertain. In any case, the extraordinary growth reported for September was likely an aberration; the number for October is likely to be closer to 150,000.
We should also expect to see some decline in the length of the average workweek in October as workers in the areas affected by the hurricane put in fewer hours.
Wage Growth Holds Steady Near 4.0 Percent
The pace of wage growth has hovered near 4.0 percent for the last six months with no clear direction. This is slightly more rapid than its pace just before the pandemic, but if productivity growth remains near 2.0 percent, it would be consistent with the Fed’s 2.0 percent inflation target.
It also is important to remember that there has been a shift from wages to profits of roughly 2.0 percentage points from before the pandemic. If this shift is to be reversed we would need some period of time in which real wage growth exceeds the rate of productivity growth. That has not happened yet, but if we see the labor market tighten further in future months, perhaps we will.
Manufacturing Employment Will Drop Due to the Boeing Strike
Manufacturing employment has fallen in three of the last four months. It is now down 37,000 over the last year, although it is still 137,000 above its pre-pandemic level. The Boeing strike, which directly idled 35,000 workers, virtually guarantees a drop in October.
If not for the strike, employment likely would be rising. We have seen record rates of factory construction in the last year. As these factories get finished, they will be hiring workers. It is worth noting that manufacturing employment was falling at the time the pandemic hit. It was 38,000 lower in February of 2020 than in February of 2019, so sustained growth in manufacturing would be a reversal of the pre-pandemic pattern.
Construction employment continues to be strong. The sector added 25,000 jobs in September and 238,000 over the last year.
Health Care Sector Likely to Lead Employment Growth
Health care has been by far the leading sector for job growth, adding 675,800 jobs over the last year. Growth has slowed somewhat in recent months, with the sector adding just 36,300 jobs in August and 45,200 jobs last month. Even with this slower pace of job growth, health care should likely outpace any other sector.
The restaurant sector has also been a major source of job growth, adding 210,300 jobs over the last year. It added 69,400 jobs in September. The October number will almost certainly be much lower. The storms will curtail hiring, as many restaurants in the hard-hit areas will have been closed. Also, we are likely to see some drop-off simply because the September number probably overstated the true rate of job growth.
State and local governments added 29,000 jobs in September, in line with the 364,000 jobs created over the last year. We are likely to see comparable growth in October.
Apart from the Hurricane, a Bright Picture
This is the last jobs report we will see before the election. Pulling out the effect of the hurricane, it will likely show a very positive picture of the labor market. The unemployment rate is likely to be at a historically low level, with the prime age EPOP near its record high. We are seeing a healthy pace of nominal wage growth, which allows for substantial real wage growth, while not being inflationary. That is a very positive picture that few would have bet on as we started the recovery from the pandemic.
