Less Government, More Employment
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.