Post from First Trust Economics Blog

Brian S. Wesbury – Chief Economist
Robert Stein, CFA – Deputy Chief Economist 

Sept 27th, 2021

Usually, the most important economic data report every

month is the Employment Report and usually that key report

comes out the first Friday of every month. But this month is

throwing one of those periodic knuckleballs and so we need to

wait an extra week, until Friday October 8.

Nothing strange is really going on, and there’s no reason for

conspiracy-thinking. Both the payroll report and the

employment survey – which give us the nonfarm payrolls and

unemployment rate data, respectively – are based on the week of

the month that includes the 12th.

Well, September 12 was a Sunday this year, which means

that key week (September 12 – 18) fell relatively late in the

month. Some months, the key week is relatively early, starting

the 6th and running through the 12th. In turn, a relatively late

survey week mixed with the first Friday of the month being

October 1 means there is too little time to put together the report.

Right now, the consensus among economists is that

nonfarm payrolls grew 513,000 in September, while the

unemployment rate dropped to 5.0% from 5.2%. We will come

out with our own forecast at the end of this week, and then might

adjust it based on incoming data on jobless claims and the ADP

jobs report. So, for all we know, the current consensus might be

exactly right. After all, payrolls are up 503,000 per month in the

past year and up 586,000 per month so far in 2021, so what the

consensus is forecasting is more of the same.

But what the consensus seems to be overlooking is that the

national system of overly generous unemployment benefits that

had been in effect since COVID-19 hit the US ran out on Labor

Day weekend. As a result, many unemployed people who had

previously been getting payments in excess of what they could

have earned while working are no longer able to do so.

We think this should translate into a major surge in job

growth in September or October, and think there is enormous

upside potential for the next two jobs reports. No one should be

surprised if one of those reports shows as much as two million

net new jobs. Seriously.

Keep in mind that not all of these jobs have to be real job

creation; much of it could be workers who were being paid

“under the table” to preserve their unusually high jobless benefits

moving back toward regular “on the books” employment.

Meanwhile, with more people looking for work the

unemployment rate might not fall as dramatically as that kind of

surge in job creation would normally predict. One of the reasons

the jobless rate has dropped so quickly in the past year or so is

that the number of people pursuing work (on the books) has

dropped. Now, there is more reason to look for work.

Yes, we are well aware that some news outlets have

published stories about the states that curtailed extra jobless

benefits earlier in the summer not getting extra job creation, but

this analysis was very weak. For example, it failed to control for

other factors, like the extra COVID cases/hospitalizations that

many of these states had this summer. Nor did they control for

the smaller remaining pool of available labor in these states. In

addition, the rollout of the child credit may have temporarily

dampened job creation nationally.

The US economy is far from fully healed from the COVID-

19 disaster. But now that the government has stepped back from

extra large payments to the unemployed, we think the labor

market is on the verge of a big step forward.