Economists will be looking for this year’s Jekyll-and-Hyde labor market to show its true face Friday when the government releases the September jobs report.
They may not get their wish.
The job market is being buffeted by so many crosscurrents -- including a shrinking pool of unemployed workers, a sluggish economy, uncertainty over the presidential election and even job-counting challenges – that the picture may remain fuzzy for at least several more months.
“It’s a very ugly stew,” says economist Diane Swonk, head of DS Economics.
Private payroll processor ADP said Wednesday that businesses added a disappointing 154,000 jobs last month, below the 165,000 economists expected. ADP attempts to foreshadow the Labor Department’s private-sector total but often differs from it significantly.
Economists estimate Labor will report a total 174,000 job gains in the public and private sectors. That would exceed the 151,000 recorded in August but fall short of the monthly average of 181,000 this year and 229,000 in 2015.
Many economists believe payroll growth is bound to slow now that the 4.9% jobless rate is supplying employers with a smaller pool of available workers. Swonk believes that’s a partial factor but doesn’t tell the whole story, noting that previously discouraged workers who are resuming their job hunts are still providing a surplus stock of applicants.
Also, employment gains have been unusually volatile this year. Totals were weak in April and May, with economists blaming a stock selloff early in the year that dinged business confidence and warm winter weather that pulled forward hiring, among other factors. Blockbuster job growth in June and July appeared to reveal pent-up hiring after those forces were no longer at play.
But August’s disappointing 151,000 tally failed to keep the momentum going. Of course, some volatility has always marked the employment figures, leading economists to focus on averages over several months.
Yet Swonk is among economists and recruitment specialists who believe the presidential election is creating a cloud of uncertainty over tax and other policies that has curbed hiring and investment. That should dissipate after the November 8 vote.
Business spending and the manufacturing sector also have been clobbered by the oil industry downturn and weak exports, overhangs that also should retreat, assuming an oil price recovery and a stabilizing dollar persist into next year.
Then there’s the matter of job counting. August’s total may have been suppressed by Labor’s tendency to initially underestimate payroll gains that month by an average 62,000 the past five years, says Jim O’Sullivan, chief U.S. economist of High Frequency Economics. Economists have blamed varying starts to the school year and the completion of temporary summer jobs that make seasonal adjustments trickier. Revisions on Friday that noticeably push up the August count could support that theory.
A similar dynamic in September has caused that month’s initial job totals to be undercounted by an average 36,000 the past five years, O’Sullivan says.
Accounting for the hodgepodge of factors, Swonk expects average monthly job growth of about 170,000 the rest of the year. O’Sullivan says that would be more than enough to bring down the unemployment rate and prod the Federal Reserve into raising interest rates in coming months for the first time in 2016.
By next year, Swonk says, the labor market’s temporary roadblocks should be history but the falling unemployment rate will likely become a bigger constraint on hiring. She predicts monthly gains of 180,000; Sullivan projects 150,000.
The good news: a slowdown in hiring is normal in a late-cycle jobs recovery. And the worker shortage should spur a faster acceleration in wage growth that, at about 2.5% a year, has picked up only modestly.