“U.S. Payrolls Growth Misses Big Again With Smallest Gain of Year”. That’s the Bloomberg headline on today’s jobs report which came in at +194k versus Street consensus of +500k. How can this be? These surveys are taken in the middle of the month and we know that as of the week of September 18th 7.9 million people had lost unemployment benefits since the end of August principally due to the elimination of the Pandemic-related Federal unemployment benefits programs. Don’t these people need jobs? The JOLTs survey in July reported 10.9 million jobs available. Indeed, the hiring website, extrapolated the JOLTs figure using their own job listings data to 11.6 million job openings as of September 24th. So, what’s going on? Lots of people who need jobs. Lots of jobs available. Only +194k hired during the month?
Do not be fooled. The jobs data was much stronger than the headline wrongly suggests. The problem is that seasonal adjustment used to arrive at the +194k figure in the commonly used Establishment Survey is sandbagging the number. The Bureau of Labor Statistics, which issues the jobs report states as much: “pandemic-related staffing fluctuations in public and private education have distorted the normal seasonal hiring and layoff patterns.” Huh? So, how distorted is the seasonally adjusted +194k figure?
On a non-seasonally adjusted basis (which is a long-winded way of saying “actual”), the economy actually add +654k jobs! That number solidly beats consensus and indicates and acceleration in job growth and continuing economic recovery. One of the major drivers of this difference is found in the Government jobs category. On a seasonally adjusted basis, Government jobs LOST -123k jobs but when looking at actual, non-seasonally adjusted data Government jobs actually ADDED a whopping +877k jobs. To put this massive swing into perspective there are only 21.9 million Government job holders meaning that the seasonal adjustment magically eliminated exactly 1 million jobs or 5% of that entire workforce. I’ll say there are “pandemic-related staffing fluctuations” distorting the numbers.
Reinforcing this conclusion that payrolls were actually much stronger than the +194k headline are the Household Survey figures that show payrolls added +794k jobs (not seasonally adjusted) and even +526k (seasonal adjusted).
The market seems to be either confused or ignoring the headline and sticking with the narrative that this number won’t stop the Fed from tapering their purchases as early as November. Inflation is high and maybe job seekers simply pushed off their job seeking a bit. This is sending interest rates higher as inflation breakevens move up. Commodities are having a good day as are Financials, which move higher with higher rates and inflation expectations. Technology, however, is also getting a bid, which is strange and should underperform with higher rates. There seems to be a tug of war in the market. Time will tell over the next few weeks, which side wins. If the market adopts a “stagflation” stance, which it did during the summer - in other words, high inflation and slowing growth – equity markets could struggle for the next month. This would be a mistake, in my opinion, upon which to capitalize because the payroll headline is a headfake. The jobs market is materially healthier and, therefore, the economy’s deceleration from unsustainable levels will be a softer landing.
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