Looking beyond the headlines
Jobs report better than headline number, and Trump's illness might prompt fiscal aid.
Bottom Line In this morning’s last employment report before the presidential election, nonfarm payrolls for September rose by a weaker-than-expected gain of only 661,000 jobs, versus consensus expectations for a more robust increase of 859,000. But July and August payrolls were revised higher by 145,000 jobs, which accounts for three-quarters of the miss. Moreover, private payrolls in September rose by a stronger-than-expected gain of 877,000 jobs, versus consensus expectations for a more moderate gain of 850,000.
Markets were additionally surprised this morning by news that President Trump tested positive with the coronavirus, which amplifies already elevated election uncertainty. Finally, while the economy could benefit from another round of fiscal stimulus, Congressional negotiators have remained far apart in their discussions over the past five months. But Trump’s illness—in the wake of last Tuesday’s debate debacle—may spur Congress to bridge its divide in the coming days.
Check government hiring What accounts for the stark difference between nonfarm and private payrolls last month? Government hiring actually declined by 216,000 jobs in September after posting a healthy increase of 467,000 jobs in August. That’s a negative month-over-month swing of nearly 700,000 jobs, with most of September’s negative delta (182,000 jobs) coming at the state and local level. Many schools have remained closed and opted for online instruction due to the coronavirus, negatively impacting not just teachers, but also classroom aides, administrative support, bus drivers, crossing guards, cafeteria workers, custodians and more. In addition, as the decennial census winds down, a reduction of 34,000 census workers in September accounted for the entire federal government decline in workers.
While the recovery of the labor market from the depths of the recession certainly is maturing, there were several positive surprises in this morning’s report. At the top of the list is the unemployment rate (U-3), which fell to a better-than-expected 7.9% in September (consensus at 8.2%), down from 8.4% in August and sharply below its peak in April at 14.7% (the single worst month for the labor market since recordkeeping began in 1939). That collective improvement of 6.8% over the past five months is quadruple the previously most dramatic such improvement in the history of the U.S. labor market.
The labor impairment rate (U-6), which is also known as the underemployment rate, is a better and broader barometer of the labor market because it includes both part-time and discouraged workers. It plummeted to 12.8% in September from 14.2% in August, down sharply from a record high of 22.8% in April. In addition, average hourly earnings rose a tick to a year-over-year gain of 4.7% in September and average weekly hours worked increased a tick to 34.7 last month. In addition, the household survey added 275,000 jobs in September, manufacturing added a much stronger-than-expected 66,000 jobs (consensus at 35,000), retail added 142,000 jobs, and leisure and hospitality rehired 318,000 employees, more than double August’s pace of 143,000 workers.
ADP and claims better than expected The ADP private payroll survey posted a much stronger-than-expected gain of 749,000 jobs in September, compared with an expected gain of 649,000 workers. August was revised higher to a gain of 481,000 jobs, up from the preliminary gain of 428,000 workers. Initial weekly jobless claims (which are an important leading indicator for the labor market) have plunged 88% over the past 26 weeks, from a peak of 6.867 million on March 28 to 837,000 on Sept. 26. Continuing claims have fallen by 53% over the past 19 weeks, from their peak at 24.9 million on May 9 to 11.8 million on Sept. 19.
October black swan With the presidential election only a month away, Trump's positive Covid-19 test caught the market by surprise, and raised more questions than answers. Although his symptoms appear mild, will he be able to execute his duties, campaign in person in battleground states and debate in person or virtually on Oct. 15 and 22? Trump’s re-election betting odds have plunged in recent days, falling to only 38%, his lowest level since August.
But perhaps his illness will spark Congress to break the ongoing Phase 4 fiscal policy stalemate. Democrats in the House pared their demands from $3.5 trillion in May to $2.2 trillion now, while Republicans in the Senate have increased their bid to about $1.5 trillion. So while they’ve narrowed the gap, there is still a sizable conceptual chasm between the two sides on three key points.
- The weekly $600 unemployment bonus expired at the end of July, so millions of workers have since returned to their jobs in August and September. While Speaker Pelosi is insisting on reinstating the bonus through the end of January 2021, perhaps Congress and the Administration can compromise on a less-generous $300-400 per week. The Congressional Budget Office said that 80% of beneficiaries are making more money staying home from work and 20% are making twice as much staying home, which provides a disincentive for these people to return to their jobs.
- Speaker Pelosi is demanding $1 trillion to bail out cities and states like Chicago from pension programs that have gone bankrupt from mismanagement over the past half century, while President Trump is offering $250 billion to keep teachers, nurses, police and firefighters in their jobs.
- Republicans are seeking to extend liability protection from junk lawsuits for businesses who have taken the necessary precautions to protect their employees and customers from Covid-19, but Speaker Pelosi flatly refuses.