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Economic Research: U.S. Biweekly Economic Roundup: Job Gains Pick Up As Labor Force Participation Fails To Improve


Economic Research: U.S. Real-Time Data: Economic Activity Slows As Omicron Takes Center Stage


Economic Research: U.S. Economic Roundup: Tight Job Market Allows For More Fed Tightening


Economic Research: Where Is The Wage Inflation? Not In Europe


Economic Research: U.S. Real-Time Data: Omicron Variant Concerns Could Delay A Complete Recovery

Economic Research: U.S. Biweekly Economic Roundup: Job Gains Pick Up As Labor Force Participation Fails To Improve

Solid Jobs Growth But Slower Than During The Summer

The economy added 531,000 jobs in October--above consensus expectations and broad based across the private sector. With net positive revisions to payrolls in the previous two months, the average monthly gain now stands at 442,000 over the last three months, a solid pace but still slower than the average of approximately 1 million in June and July (see chart 1). This is consistent with our high-frequency real-time indicators that showed that COVID-19 cases and hospitalizations declined during October, with some people-sensitive services--such as in-person dining and air travel--improving, albeit modestly.

Chart 1


Tentative Signs Of Easing Headwinds

Sector-level data is giving some indications that the economy is moving past the headwinds from the delta variant (in August and September), and perhaps some supply shortages have begun to ease. Job gains were broad based across major private sectors, led by leisure and hospitality (+164,000), professional and business services (+100,000), manufacturing (+60,000), and transportation and warehousing (+54,000). The auto sector, the poster child of underutilization of capacity due to parts shortages (semiconductors), also added jobs (+27,000)--perhaps an early indication that production is starting to pick up again with some easing in component shortages. Neither COVID-19 nor the shortage of semiconductors is likely to go away for many months, but at least they aren't intensifying.

Payroll hiring picked up in October despite the public sector losing 73,000 jobs. Education jobs fell at the local (-43,000) and state (-22,000) levels as pandemic-related staffing fluctuations have distorted the normal seasonal patterns.

Recovery Is Far From Complete

That said, the recovery of payroll jobs is far from complete. Nonfarm employment remains 4.2 million, or 2.8%, below its pre-pandemic level. The leisure and hospitality sector remains the hardest-hit sector, with employment still 8.2% below pre-pandemic levels and accounting for one-third of the total nonfarm job deficit. In contrast, employment in transportation and warehousing is 149,000 above its pre-pandemic level, supported by gains in warehousing and storage, and couriers and messengers.

At the current pace of payroll gains, the labor market will get back to the pre-pandemic level sometime in the third quarter of 2022. Closing the gap with the pre-pandemic full employment trend (which would be considered normal after factoring in population growth and a larger economy, not just the pre-pandemic level) wouldn't happen until sometime in the first quarter of 2023.

A faster pace of job growth would require the labor force participation rate to rebound (and an unusually low rate of flows from unemployment to employment to pick up). Labor force participation disappointed once again by holding steady at 61.6%, the same level as 12 months ago (see chart 2). Meanwhile, the unemployment rate continued its steady fall, hitting 4.6%. The unemployment rate is now only 1.1 percentage points higher than it was prior to the pandemic. But with fewer people in the labor force than would be expected given the state of the economy, the labor market is less recovered than the unemployment rate would suggest.

Chart 2


It is one thing if folks near or at retirement age decided to stay away from the workforce, but it is also the prime-age workers (25-54) that haven't improved much in their participation rate. At 81.7%, the prime-age worker participation rate remains 1.3 percentage points below its 83% pre-pandemic high. It has been stalled since June 2021, when it recovered two-thirds of the decline since April 2020.

Several reasons have been suggested for why the potential workers may be on the sidelines. They vary from ongoing concerns about the pandemic; an underestimated number of folks succumbing to COVID-19 (death or disabled); retirements; and wealth effects associated with larger cash balances and asset valuation (equity or home), which give folks more flexibility on when to return to work. (Extended unemployment benefits are not the culprit, see more in "Economic Research: Where Are The Workers? Three Explanations Point To An Answer," published Nov. 4, 2021.) Some of these factors should improve as the pandemic recedes while others may take longer to resolve. Regardless, returning to the pre-pandemic path is going to require labor force participation rates to improve.

The employment-to-population ratio ticked up to 58.8%, largely reflecting increases in employment among prime-age workers and those aged 16-24. Employment of the 55+ age group has recovered the least, partly reflecting the increase in retirements during the pandemic.

The Fed Begins Tapering, Stressing Employment Is Well Short Of Its Threshold For A First Rate Hike

In his press conference following the FOMC meeting this week, Fed Chair Jerome Powell--in an effort to separate interest rate policy rate hikes from asset purchases tapering--stressed that the maximum employment threshold is far from achieved even as the inflation threshold has been met. The market is pricing in a first rate hike to come by midyear next year, immediately following the completion of new asset purchases.

The planned taper is faster than the previous taper announced in 2013. According to Chair Powell, a faster taper now is justified given the economy doesn't have as much room from maximum employment (in his view) as it did at the end of 2013, and inflation is higher than target, instead of being lower back then. The committee intends to discuss the longer-term plans for the securities portfolio in future meetings.

The statement published after the meeting acknowledged the slowdown in the economy recently, and Chair Powell highlighted in his press conference, "the summer's surge in COVID cases from the Delta variant has held back the recovery in the sectors most adversely affected by the pandemic, including travel and leisure." The advanced estimate of GDP showed 2% growth in the third quarter (revisions on key data since the advance estimate suggest an upward revision to 2.3%), a marked slowdown from over 6.5% average annualized growth in the first two quarters of the year.

The employment picture for October gives an early indication that economic activity is firming in the fourth quarter heading into the holiday spending season. The 0.4% month average hourly wage growth over October (4.9% over the past 12 months) helps defray consumer price inflation (see chart 3). (Headline Personal Consumption Expenditures inflation was 4.5% year over year in September, and headline Consumer Price Index inflation was 5.4%.) This should help consumer spending to continue carrying the economy as the auto sector and other manufacturers work on unfilled demand.

Chart 3


Busy Producers Saw Supply Constraints Ease From Second-Quarter Levels

October manufacturing PMI (Purchasing Managers' Index) finished at 60.8%, according to the Institute for Supply Management. PMI remained well above the 50% break-even line and the precrisis level but has hovered around 60% since March, reflecting a mix of resilient demand for goods and persistent supply constraints. The September factory orders report also indicated still strong demand, with new orders and shipments for manufactured goods inching up by 0.2% and 0.6%, respectively, after increasing for 15 of the last 17 months.

That said, and as Fed Chair Powell mentioned in his FOMC press conference this week, "activity has also been restrained by supply constraints and bottlenecks, notably in the motor vehicle industry." Indeed, the value of auto shipments contracted sharply, by 12.3% in September, following a decline of 6.8% in August. Meanwhile, vehicle sales in October remained well below pre-pandemic levels, at a 13.4 million seasonally adjusted annual rate, inching up by 0.6% from September.

Fortunately, signs of alleviating supply bottlenecks appeared in the October PMI report. Indices of supplier deliveries, prices, and backlog of orders all remained lower than levels in the second quarter this year, indicating slower growth of delivery times, prices paid on raw materials, and backlog of orders.

Table 1

Review Of U.S. Economic Indicators
Release date Measurements Aug-21 Sep-21 Oct-21 Level year ago Year-over-year
Labor market
Four-week moving average of initial claims 11/4/2021 in 000 356 341 285 791
Unemployment rate 11/5/2021 % 5.2 4.8 4.6 6.9
All employees, total nonfarm 11/5/2021 change in '000 483 312 531 680
All employees, total private 11/5/2021 change in '000 504 365 604 954
Average hourly earnings of all employees, total private 11/5/2021 m/m,% 0.39 0.6 0.4 4.9
Average weekly hours of all employees, total private 11/5/2021 (Hours of Work) 34.6 34.8 34.7 34.8
Total nonfarm private payroll employment 11/3/2021 change in '000 309.8 522.5 571.1 421.9
Labor force participation rate 11/5/2021 % 61.7 61.6 61.6 61.6
Job openings: total nonfarm 10/12/2021 millions 10.4 6.5
Consumer spending and confidence
Personal income 10/29/2021 m/m,% 0.2 (1) 4.2
Real disposable personal income 10/29/2021 m/m,% (0.2) (1.6) (2)
Personal Consumption Expenditures 10/29/2021 m/m,% 1.0 0.6 10.9
Personal saving rate 10/29/2021 % 9.2 7.5 14.3
Total vehicle sales 10/29/2021 Millions 13.4 12.6 16.7
University of Michigan: Consumer Sentiment 10/29/2021 Index 70.3 72.8 80.4
Advance retail sales: retail trade and food services 10/15/2021 m/m,% 0.9 0.7 13.9
Advance retail sales: retail trade 10/15/2021 m/m,% 1.0 0.8 12.2
Industrial activity
Industrial Production: total index 10/18/2021 m/m,% (0.1) (1.3) 4.6
Industrial Production: manufacturing (NAICS) 10/18/2021 m/m,% (0.4) (0.8) 5.1
Total business inventories 10/15/2021 m/m,% 0.6 7.4
Capacity utilization: total index 10/18/2021 Index 76.2 75.2 72.1
Current General Business Conditions; Diffusion Index for New York 10/15/2021 Index 18.3 34.3 19.8 10.5
Chicago Fed National Activity Index 10/25/2021 Index 0.1 (0.1) 0.4
Current General Activity; Diffusion Index for Federal Reserve District 3: Philadelphia 10/21/2021 Index 19.4 30.7 23.8 32.3
New privately owned housing units started: total units 10/19/2021 millions 1.58 1.55 1.45
New privately owned housing units authorized in permit-issuing places: total units 10/26/2021 millions 1.72 1.59 1.59
New privately owned housing units completed: total units 10/19/2021 millions 1.3 1.24 1.43
Monthly supply of houses in the U.S. 10/26/2021 Months 6 6 4
Total construction spending: total construction in the U.S. 11/1/2021 m/m,% 0.1 (0.5) 7.8
External trade
Trade balance: goods and services, balance of payments basis 11/4/2021 billions (72.8) (80.9) (62.6)
Exports of goods and services, balance of payments basis 11/4/2021 billions 214.0 207.6 178.1
Imports of goods and services: balance of payments basis 11/4/2021 billions 286.8 288.5 240.7
Import Price Index (end use): all commodities 10/15/2021 m/m,% (0.3) 0.4 9.2
Export Price Index (end use): all commodities 10/15/2021 m/m,% 0.4 0.1 16.3
Producer Price Index by commodity: final demand 10/14/2021 m/m,% 0.7 0.5 8.6
Producer Price Index by commodity: final demand: finished goods less foods and energy 10/14/2021 m/m,% 0.5 0.6 5.2
Consumer Price Index for all urban consumers: all items in U.S. city average 10/13/2021 m/m,% 0.3 0.4 5.4
Consumer Price Index for all urban consumers: all items less food and energy in U.S. city average 10/13/2021 m/m,% 0.1 0.2 4.0
Personal Consumption Expenditures: chain-type price index 10/29/2021 m/m,% 0.3 0.3 4.4
Personal Consumption Expenditures excluding food and energy (chain-type price index) 10/29/2021 m/m,% 0.3 0.2 3.6
Note: Data retrieved from FRED, Federal Reserve Bank of St. Louis, m/m--Month over month. Last three months selected, yearly data is either year-over-year change (%) or level value year ago. Total nonfarm private payroll employment is from ADP. Data retrieved on Nov. 5, 2021.

Table 2

Economic Release Calendar
Date Release For Forecast Consensus Previous
9-Nov PPI (%) Oct 0.6 0.7 0.5
PPI (excluding food and energy) (%) Oct 0.3 0.5 0.2
10-Nov CPI (%) Oct 0.5 0.6 0.4
CPI (excluding food and energy) (%) Oct 0.2 0.4 0.2
Initial claims Week of 11/6/21 265 266 269
Wholesale sales (%) Sep 0.5 0.6 (1.1)
12-Nov Treasury budget (bil. $) Oct (137) (137) (61.5)
15-Nov University of Michigan Consumer Sentiment (prelim) Nov 73.0 72.0 71.7
16-Nov Empire State Index Nov 18.0 20.2 19.8
Retail sales (%) Oct 0.7 0.5 0.7
Retail sales (excluding auto) (%) Oct 0.5 0.6 0.8
Export Price Index Oct 0.8 0.8 0.1
Import Price Index Oct 0.9 0.9 0.4
Industrial production Oct 0.7 0.7 (1.3)
Capacity utilization Oct 75.7 75.7 75.2
17-Nov Business inventories Sep 0.5 0.5 0.6
18-Nov Housing starts (mil.) Oct 1.540 1.573 1.555
Philadelphia Fed Index Nov 19.0 21.0 23.8
Leading indicators Oct 0.7 0.7 0.2

The views expressed here are the independent opinions of S&P Global's economics group, which is separate from, but provides forecasts and other input to, S&P Global Ratings' analysts. The economic views herein may be incorporated into S&P Global Ratings' credit ratings; however, credit ratings are determined and assigned by ratings committees, exercising analytical judgment in accordance with S&P Global Ratings' publicly available methodologies.

This report does not constitute a rating action.

U.S. Chief Economist:Beth Ann Bovino, New York + 1 (212) 438 1652;
U.S. Senior Economist:Satyam Panday, New York + 1 (212) 438 6009;
Contributor:Shuyang Wu, Beijing

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