Some Thoughts About Today’s Jobs Report

It seems just like it looks: outstandingly good

Today's Employment Situation Summary, or “jobs report” as most of us know it, from the Bureau of Labor Statistics (BLS) showed an increase in jobs for September of 336,000. That's quite significantly higher than anticipated. This can only be described as an astounding show of strength in the U.S. economy and employment situation.

So what does this mean?   Normally this would be great news, but with today's market sentiment, it will be seen by many as potentially negative. It will increase worries about inflation and the likelihood of the Fed raising rates again. We're about to see bonds blow up, yields rise, stocks fall, and mortgage rates rise. Many of the things we think when we think about unaffordability will be prominent again, since higher rates mean higher costs, etc. See my recent article, When Good Economic Data is Bad News, for some explanations on this.

But it wasn’t just the jobs numbers themselves that were good.  There were other indicators in the report of a generally strong economy with some inflation tampering tidbits as well, a great combination.

Here’s a few main takeaways that we’re not seeing in most of the headlines yet:

Upward Revisions

Each of the last two months were revised upward, which ends a trend of 3 months of revisions downward. This indicates more job strength than originally known at the time. July and August now both sit at over 200k jobs created. That's a big deal. 

Other Positive-trending Indicator

Other than the gross jobs numbers, every other indicator was literally or relatively unchanged (unemployment rate, participation rate, number of hours worked etc), except for one: Avg Hourly Earnings, which went up .2% for the month. Not a huge increase, but an increase in pay nonetheless. In addition, the yearly increase is 4.2% which beats inflation, which was at 3.7% for the past year. But it also is a number that is slowing down, which should ease concerns of the Fed and investors regarding inflation. 

This is all outstanding news. Not only are workers consistently getting pay increases that beat inflation, they are getting them at levels that aren’t quite as “hot” as previous months, which will cool worries in the market and Fed about inflation. A positive double whammy so to speak.

Some Numbers Influenced by Writers’ and Autoworkers’ Strikes

Jobs in the “Information” category declined by 7,000, but this was largely due to the writers and actors strike. In addition, 25,000 workers have been on strike in the autoworkers industry due to their recent large-scale strike, keeping the manufacturing numbers muted. If these strikes had not taken place, the headline number probably would have been in the 375k range, which would have been unthinkable.

Signs that Consumers are Doing Well

Leisure and hospitality had by far the biggest increase at 96,000, with restaurant-type jobs up 61,000, reaching their pre-pandemic levels. Again, this is great news, not just for the industry, but shows that consumers are eating and drinking out and spending their money. This conflicts with the narrative that there's an inordinate amount of struggling that is dominating the economy. Yes, I know people are struggling and costs are higher now than a couple years ago and it's been tough on many people, but the fact is the data has been very mixed on this, and it is just not showing that to be the correct dominant narrative.

Are There Any Negatives in this Report?

Yes, of course, there’s always something that can be picked out that’s perceived as negative. There’s already been a swarm of negative takes on this, mostly from partisan actors. Hard to blame them, that’s their job. But let’s examine a few. Of course, we’ll spend more time on the negative than the positive because debunking and/or challenging claims always takes more energy than making the claim itself.

Participation rate is low and unchanged from August.  This is always a favorite of the opposition party, whomever it is. When unemployment is down, the political party not in power will almost always bring this up, and present it totally out of context. The participation rate is a measure of the number of people that are actively looking for work, both employed and unemployed, relative to the total population. So sometimes the math works out that the unemployment rate goes down, which looks good, but that can be because the participation rate went down, which is considered not good.  Fair enough.

The key thing for this argument is that the participation rate is not as high as it was before the pandemic. This is true, but it was at historically relatively high levels right before the pandemic and was understandably significantly altered due to the pandemic. In addition, it has been increasing steadily since 2020, and is trending toward reaching those levels again in the next few years. So the trend is upward and is obviously currently recovering from a shock to the system, caused by the pandemic.

Government Jobs Accounted for a Large Portion of the Increase.  Another truism. Government jobs came in at a 73,000 increase, which is 21.5% of the total jobs. This is in second place behind the leisure and hospitality jobs I mentioned earlier. 

But so what? These jobs count as jobs either way you look at them. And government jobs are created alongside private sector jobs when an economy is doing well. This is because as the economy grows, so do tax revenues and the need and interest in increasing government services. This number is sometimes a low proportion of the total number of jobs and sometimes a high proportion. Citing this as a negative is an attempt at using the big, bad government for “fear factor” purposes, but the fact is that as the private sector economy does well, so does the public sector economy.

Foreign-born workers are getting a disproportionate amount of the new jobs. Wow, speaking of fear factor, this is a doozy (I’m working on an upcoming article to address this more in depth). The data on foreign-born and native-born employment are interesting and not easy to interpret. But, with just the right context and graphic displays, you can make it seem like “foreigners” are getting a better shake than “natives”. This narrative is one that worries me more than many others, because this can obviously lead to some very dark places.

It is true that foreign-born employment is increasing, and the post-pandemic trend line is increasing at a faster rate than native-born employment. And it is true that foreign-born workers have exceeded the pre-pandemic level and native-born workers have just gotten about even to the pre-pandemic level. But this is where participation rate matters…a lot.

Foreign-born participation rate (PR) is higher overall than for native-born workers, but it has always been that way historically. And the PR for foreign-born workers is now at a level that exceeds their pre-pandemic level, whereas the PR for native-born workers is lower than it was before the pandemic. There are likely several reasons for this, but one is probably simply that they are more motivated to work. That’s literally what “participation” means: those who are participating in the labor force, or trying to get work. If native-born workers were trying to get work at the same or better rate as the foreign-born, their numbers would be increasing at a similar or better rate.

Also, it is important to note that we’re talking about rate, but the absolute numbers still very much favor native-born workers. Even a small change in the number of foreign-born workers will result in a relatively large change in rate, compared to native-born workers. Basically, they have much, much more room to grow than do native-born workers.  And when you combine this with the significantly higher level of participation in the workforce, you’re going to get higher rates of growth.

And then there’s another basic question: Why exactly is this a negative? It would only be a negative if you have a problem with foreign-born workers doing well at getting jobs. But we all know that some people out there feel exactly this way.

Mostly part-time jobs were added, we actually lost full time jobs. This is not quite true, we gained a tiny bit of full-time work.  You’d have to look at the “seasonally adjusted” numbers to conclude we lost full-time jobs, and anyone acting with partisan intentions will jump back and forth between the raw numbers and the seasonally adjusted numbers to suit their purposes. But I’ve been consistently using the raw data, and for this set of data, part-time jobs did outpace full-time jobs by quite a bit, 1.1 mil to 115k (this data is from a different survey technique than the jobs report numbers, that’s why these numbers don’t add up to the report’s headline jobs number), and even though we didn’t lose full-time jobs, this is still actually something to consider and is a legitimate concern, although probably not as much as it may appear at first. 

Anecdotally and intuitively, we do want to see more full-time work available. But beneath the surface the part-time numbers show that only 16% of the part-time workers took such a job for “economic reasons”, which includes “slack work or business conditions” and “could only find part time work”. The rest were all for “noneconomic reasons”, of which there are many, and some do include other types of hardships, but they are not related to needing the money to make ends meet.  This reflects that an overwhelming majority of people are not “settling” for part-time work to make ends meet, they are getting part-time work because they want to or need to for other reasons.

And even if part-time work is prevalent, wages have gone up as well, still outpacing inflation. This is good news for those that are working these jobs. I’m sure they’re happier with working 34 hours a week at a higher wage and overall pay than they would have made at full-time working a lower wage.

In any normal universe, this jobs report is very positive and encouraging. The main caveat is that the Federal Reserve and significant numbers of investors may look to this as a sign of potential runaway inflation around the corner and behave in ways that cause higher rates and higher costs and pain for everyone, and thus start a vicious cycle. So far, the inflation data has been very encouraging, even in the midst of positive job growth data, so this may not come to pass in the long run. Let’s hope this continues and we remain on the current path of a healthy economic expansion where almost everyone benefits.