Shifting down the gears - Capital Economics
US Economics

Shifting down the gears

US Employment Report Preview
Written by Michael Pearce
Cancel X

We estimate that non-farm payrolls rose by a more modest 800,000 in September, as the pace of private sector rehiring slows further and the recent burst of Census hiring goes into reverse.

We estimate that non-farm payrolls rose by a more modest 800,000 in September, as the pace of private sector rehiring slows further and the recent burst of Census hiring goes into reverse.

The near-1.4 million rise in non-farm payroll employment last month was flattered by the hiring of 240,000 additional Census workers. That will switch from a boost to a drag this month, with close to 40,000 of those temporary workers let go by the September survey week. Otherwise, the clear picture that has emerged in the recent employment figures is a continued slowdown in the pace of rehiring across the private sector. The slowdown in construction and manufacturing employment growth is slightly at odds with the red-hot housing market and the strength of goods demand. But those sectors account for a relatively small share of the shortfall in total employment, with the hardest-hit leisure & hospitality sector accounting for 4 million of the still-outstanding 11 million jobs lost since February.

The most reliable high-frequency indicators we track suggest the recovery in those discretionary services sectors continued to grind gradually higher in the second half of August and the beginning of September. (See Chart 1.) That was echoed by the Markit flash PMIs for this month, which were little changed and remained firmly in expansionary territory, including the employment indices.

Chart 1: Consumption Indicators (%y/y)

Sources: OpenTable, TSA, STR

Many commentators have focused on the recent decline in hours worked based on daily data from payroll management software provider Homebase. But the problem with these data are that recent estimates appear to be biased downwards and there is a consistent pattern of upward revisions. (See Chart 2.) Moreover, they are not seasonally adjusted, hence the large dips around major holidays – including the Labor Day weekend, which coincided with the survey week.

Chart 2: Homebase Hours Worked (% Chg Relative to Same Day in Jan 2020, 7d ma)

Source: Richmond Fed Pandemic Pulse

Based on the activity data, we expect a slightly slower increase in private payroll employment this month than in August. Combined with the drag from Census workers being let go, we expect headline non-farm payroll growth will slow to 800,000, from 1,371,000. With employment still around 11 million below its February level, that highlights how far away we still are from full employment.

In August, there was a far larger 3.7 million rebound in the household measure of employment, which pushed the unemployment rate down unexpectedly, to 8.4% from 10.2%. Big deviations in the household and establishment surveys in a given month are fairly common, but the trends over time are similar, with both surveys showing a similar number of jobs being recouped since April. We expect a far smaller increase in the household measure of employment in September. That, together with another large rise in the labour force as more people begin searching for work again, should mean the unemployment rate only edged lower to 8.2%.

Table 1: Employment Data

Labour Market Indicators

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep1

Implication for Payroll Growth

Jobless Claims (Monthly Ave.)

214

2,667

5,040

2,608

1,499

1,369

993

878

Better

Jobless Claims (for week including the 12th)

215

282

4,442

2,446

1,540

1,422

1,104

866

Better

Challenger Job Cut Announcements (SA)

52.1

215.0

705.2

384.9

187.5

285.6

124.3

Better

Job Openings Rate

4.4

3.8

3.7

3.9

4.2

4.5

Better

Markit Manufacturing Employment Index

50.5

47.0

36.4

38.0

47.9

49.6

52.7

52.6

Worse

Markit Services Employment Index

51.0

47.5

35.6

37.8

49.4

51.0

55.6

55.4

Worse

ADP Private Payroll Employment Survey

147

-302

-19,409

3,341

4,486

212

428

Better

CE Estimated Change in Non-Farm Payrolls

241

95

-22,500

-9,000

5,000

1,000

1,000

800

Consensus Forecast for Non-Farm Payrolls

175

-100

-4,250

-8,000

3,000

1,600

1,400

875

Actual Change in Non-Farm Payrolls

251

-1,373

-20,787

2,725

4,781

1,734

1,371

Actual Change in Private Payrolls

220

-1,356

-19,835

3,236

4,729

1,481

1,027

Consensus Forecast

Other Employment Report Data

Unemployment Rate (%)

3.5

4.4

14.7

13.3

11.1

10.2

8.4

8.2

8.3

Change in Household Employment

45

-2,987

-22,369

3,839

4,940

1,350

3,756

All Employees Hours Worked

34.4

34.1

34.2

34.7

34.6

34.5

34.6

34.6

34.6

All Employees Ave. Hourly Earnings (%m/m)

0.3

0.6

4.7

-1.1

-1.3

0.1

0.4

0.1

0.2

All Employees Ave. Hourly Earnings (%y/y)

3.0

3.4

8.0

6.6

4.9

4.7

4.7

4.8

4.6

Sources: Refinitiv, Markit, Capital Economics

1Figures in blue are forecasts

Chart 3: Actual & Estimated Change in Non-Farm Payrolls (000s)

Sources: Refinitiv, Capital Economics


Michael Pearce, Senior US Economist, +1 646 583 3163, michael.pearce@capitaleconomics.com