We are looking for nonfarm payrolls to increase by 235,000 for September after adding only 142,000 in August. We estimate private sector employment will expand by 225,000. Risks to our forecast are largely to the upside, given that unemployment claims have been trending lower and employment indicators for the manufacturing and service sectors are on the rise, according to surveys by the Institute for Supply Managers (ISM). Revisions could raise the average monthly jobs totals for August and September to 200,000 or more.
Construction employment should also rise, although gains remain tepid relative to the base. The same is true of manufacturing, which suffered a fairly significant downdraft (a loss of more than four million jobs) in the early 2000s before the financial crisis hit. Indeed, one could argue that the housing boom helped mask the losses suffered by less educated workers (particularly men) at the onset of the 21st century.
Some academics have argued that those men postponed education during the boom because the opportunity costs were too great so now they are much less employable; similar arguments were used to justify 25% unemployment rates during the Great Depression, but were later proven wrong.
We also have some 18,000 workers coming back who were not officially on strike but did walk off the job and disrupt a chain of grocery stores in New England. At the same time, state and local payrolls should indicate more teacher hires, though depending on the timing they might show up as revisions to August or as new hires in September. Teachers are finally being rehired after suffering draconian job cuts earlier in the recovery.
Indeed, the swing we are seeing in state and local hires is a game changer. Improving state and local coffers have taken the job situation at the state and local levels from a deficit of about 25,000 jobs per month to an increase of 10,000 or more per month. Moreover, state and local government jobs tend to be higher paying than those in the retail, leisure and hospitality sector where too many new jobs have been concentrated in recent years.
Separately, we will be watching closely to see if the upswing we’ve seen in permanent hires in business services continues. The pick-up in professional jobs, from accountants to engineers and architects, is particularly important for new college graduates and for overall wage growth. Younger workers still make up a considerable amount of slack in the labor market.
The only real negative to watch is in leisure and hospitality jobs; three casinos closed in Atlantic City last month with some 8,000 workers losing their jobs; it will likely take some time for them to find new jobs.
Bottom Line: Labor markets are showing some signs of healing, but still have a long way to go before they can be considered “healthy.” The unemployment rate is expected to hold at 6.1%. Wages could creep up a bit with a shift to better paying jobs. The Federal Reserve is looking for a sustained increase in both wages and inflation, which may not occur until unemployment falls much further than most expected.