The US unemployment rate increased more than predicted in the previous month. The headwind from the boost in coronavirus infections over the summer has decreased. This gives more evidence that the economic activity was getting back its momentum in the fourth quarter. The nonfarm payrolls grew by 531,000 jobs in the previous month. This was declared by the Labor Department in its highly-watched employment report a few days ago. The data for September was modified to a higher level of 312,00 instead of the earlier reported 194,000. The experts had forecasted the payrolls to increase by 450,000 jobs. The estimates ranged from as low as 125,000 jobs to as high as 755,000. The worker shortages have also remained, even as federal government-funded unemployment benefits were finished in early September and the schools reopened for in-person education.
But the report connected the service sector activity with increasing consumer confidence in giving a more favorable outlook of the economy after the delta wave of the COVID-19 pandemic and economy-wide shortage of goods hindered growth in the previous quarter to its slowest speed in more than a year. In September, the unemployment rate decreased from 4.8% to 4.6%. Businesses are desperate to hire more people. But millions remain outside the labor force and are unemployed. The blame for this labor market disconnect has been pinned on the recently finished expanded unemployment benefits, an aging population, career changes, massive savings, early retirements, fears of getting infected with the coronavirus, and caregiving requirements during the pandemic. Many citizens who moved out of towns during the pandemic are yet to return.
So, there can also be a mismatch between the location and the open jobs. There were more than ten million unfilled jobs at the end of a few months ago. Nearly five million citizens have left the labor force since the start of the pandemic. ManpowerGroup President Becky Frankiewicz said, "This morning's numbers represent the beginning of a reconciliation between American companies and American workers." Frankiewicz also suggested that "As the stimulus ended, employers realized they needed to move closer to what workers want to bring them back in—with higher wages, greater flexibility and more focus on the health and well-being of their people. Employers accept that good wages are now table stakes and that employees are seeking more flexibility and more purpose in their lives."
Federal Reserve to start scaling back on bond purchases
The Federal Reserve has said that it will start scaling back the amount of cash it is infusing into the economy through the monthly bond purchases. There are some concerns that the Federal Government's vaccine mandate, which comes into force in January and applies to Federal Government businesses and contractors with more than a hundred employees, could increase the worker shortages. There has also been a growth in strikes as employees take advantage of the narrow labor market to get better conditions and more pay. The walkout by nearly ten thousand employees of Deere & CO had no impact on the payrolls of the previous month because it started in the middle of the period during which the Federal Government surveyed businesses and households for the unemployment report.
The scramble for employees continued to increase wage growth, underpin consumer spending over the holiday season, together with record savings. But shortages of goods abound, and the salaries are behind the inflation rate. The median estimate in a survey of experts for a gain of 450,000 payrolls and the unemployment rate to decrease to 4.7%. The dollar held on to its gains after the release of the unemployment report. At the same time, the yield on the Treasury note fluctuated. The US stock-index futures increased. The greater hiring speed shows that more citizens returned to the workplace as the coronavirus cases decreased and the employers gave higher wages. A portion of the payroll increase may have come after more than seven million citizens lost federal extended unemployment aid in September.
The Treasury Secretary Janet Yellen commented about the unemployment report with a thread on Twitter. She stated that the aggressive fiscal policies of the administration have pumped in nearly $5 trillion to the economy that has helped to decrease the more dire consequences from the coronavirus pandemic. Yellen said, "Bold fiscal policy works. A rebound like this was never a foregone conclusion. When our administration took office back in January, there was a real risk that our economy would slip into a prolonged recession. Now our recovery is outpacing other wealthy nations."
Federal Reserve Chair Jerome Powell said, "these impediments to labor supply should diminish with further progress on containing the virus, supporting gains in employment and economic activity. We have high inflation, and we have to balance that with what is going on in the employment market," Powell told reporters on Wednesday following the FOMC's policy meeting. "It is a complicated situation. There is still ground to cover to reach maximum employment both in terms of employment and participation. The current economic situation regarding inflation and employment "is not the traditional Phillips curve where there is a direct tradeoff" between the two because "the inflation that we are seeing is not due to a tight labor market. It is due to bottlenecks, and it is due to shortages, and it is due to very strong demand meeting those."
Unemployment Rate report details
The payroll gains in the previous month were majorly due to a 164,000 growth in hospitality and leisure. Business and professional services, warehousing and transportation, and manufacturing also gave good growth. The government payrolls decreased. The average hourly earnings increased by 4.9% in the previous month from a year ago. This is the most in the past half-year. The growth underlines workers' ability to get higher pay amidst the ongoing shortage of labor. The greater wages could mean that more businesses increase prices to protect margins as transportation, materials, and labor costs increase, contributing to inflation. The prices have increased by the most in nearly three decades based on year-on-year. Shortages and supply chain bottlenecks have driven this.
Amazon Inc. CFO Brian Olsavsky said, "The demand for labor has recently coincided with the shortage of available workers, particularly in the United States. It has led to wage increases and sign-on incentives as companies compete for workers as well as inconsistent staffing levels in our operations." Yum! Brands Inc. CFO Chris Turner said, "US labor availability remains tight across most industries, driving wage inflation and staffing challenges that have resulted in a small number of our stores, limiting operating hours." Kimberly-Clark Corp CEO Michael Hsu said, "It does feel like there are more options for hourly employees, and because of that, that is putting pressure on the labor markets and hiring for the roles that we need."
The gain in the previous month leaves the payrolls more than four million below the pre-pandemic mark. New flare-ups in COVID-19 can restrain the speed of hiring in the coming months. The recent data shows that hospitalizations have increased in more than a dozen states. This could be the precursor of another wave of the virus. The health care payrolls increased in the previous month by the most this year. This has been led by nursing and home health care.