Common Cents & Waiting

“The waiting is the hardest part
Every day you get one more yard
You take it on faith, you take it to the heart
The waiting is the hardest part”

 Tom Petty


After a somewhat surprisingly strong ADP Employment Change report earlier the week, Wall Street waited for this morning’s official Employment Situation on pins & needles. The question wasn’t whether it was going to be a big number. No. It was just how big. Did the economy create more than 500K jobs during September or not? Inquiring minds wanted to know; they needed to know.

After all, the Federal Reserve has a so-called ‘dual mandate’ of: maximum employment and price stability. I think it fair to say it is failing pretty spectacularly on the latter, arguably on purpose. This is because it wants to get as many people back to work as is possible before it starts to drain excess reserves out of the financial system.

In essence, jobs currently trump (no pun of any kind intended) inflation. Therefore, for all intents and purposes, the labor markets will likely dictate the next Fed move more so than the Consumer Price Index (CPI). Usually it is the other way around. However, thanks to the ham-handed, economic restrictions during the pandemic, things are a little bit different this go around.

Then, at precisely 7:30 am CDT, the Bureau of Labor Statistics (BLS) released ‘The Employment Situation – September 2021.’ At first blush, the headline numbers were head scratchers.

Officially, the US economy created 194K net, new payroll jobs last month. This was/is substantially less than the median estimate in the Bloomberg survey: 500K. Further, but for an outlier 0K forecast from a Thomas Costerg at Banque Pictet & Cie, a Swiss bank, it would have been lower than the next lowest estimate of 200K. I mean, Wall Street whiffed on this one, as it came in some 2.5 standard deviations to the left.

Interestingly, though, the Unemployment Rate fell from 5.2% to 4.8%. Huh. Also, Average Hourly Earnings were up higher than expected at 0.6%, and Average Weekly Hours also ticked up to 34.8. These things would ordinarily suggest the labor markets are getting tighter, arguably a lot tighter. But what’s with that very pedestrian 194K? Sure, that is a decent number, sort of an average month during an economic expansion. However, we were expecting more, so much more.

What gives?

Would I come across as too much of a nerd if I told you this was potentially due to how the BLS conducts its surveys? Okay, I suspected as much. However, here is a short snippet of the official methodology, straight from this morning’s report:

“For both surveys, the data for a given month relate to a particular week or pay period. In the household survey, the reference period is generally the calendar week that contains the 12th day of the month. In the establishment survey, the reference period is the pay period including the 12th, which may or may not correspond directly to the calendar week.”

This is important, because the 12th this past month fell on a Sunday. Also, Labor Day was a little “late” this year, falling on the 6th. Finally, the Federal government’s additional unemployment insurance benefits expired on the 6th, interestingly enough Labor Day. So what?

I submit, due to the points I made in the previous paragraph, HR departments likely didn’t get all of their September hires onto to the payroll system in time to make the 12th cutoff time. This is because people who HAD been receiving the padded benefits probably didn’t get too serious about getting a job until after the 6th AND companies are understandably prone to “put things off until after the 3-day weekend.” That would have left 4 days to get everyone employed and onto the payroll, and, as we all know, there is sometimes a lag in this. As George Bush #1 was prone to say: “not gonna happen.”

As a result, I strongly suspect the second half of the month, from the 13th to the 30th, was MUCH more robust in terms of both hiring AND, importantly, getting new workers onto the payroll system. Therefore, investors should expected a relatively significant upwards revision to that 194K number next month. Further, there should also be an increase in the Labor Force Participation Rate, which fell slightly this month, as respondents will no longer have any reason to not respond truthfully to the survey. I am serious about that.

So, in keeping it relatively short here today, we are going to have to wait until next month to get a better understanding about the true strength of the US labor markets. As such, we will have to wait until next month to get a better understanding of the Fed’s intentions. Interestingly enough, the Fed’s FOMC will have its next meeting the first week in November, just two days prior to the next Employment Situation report. As you can imagine, the pundits on the TV will be going into overdrive from about 1:00 pm CDT on the 3rd until around 7:30 am CDT on the 5th. I mean, they will be breathless.

Isn’t waiting fun?

Take care, thank you for your continued support, and be sure to listen to our Trading Perspectives podcast.


John Norris
Chief Economist




As always, nothing in this newsletter should be considered or otherwise construed as an offer to buy or sell investment services or securities of any type. Any individual action you might take from reading this newsletter is at your own risk. My opinion, as those of our investment committee, are subject to change without notice. Finally, the opinions expressed herein are not necessarily those of the reset of the associates and/or shareholders of Oakworth Capital Bank or the official position of the company itself.