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Key Points for the Week

  • U.S. nonfarm payrolls rose 194,000 in September, missing expectations for an increase of 479,000. Weak hiring in private and public schools undercut employment growth.
  • Unemployment fell to 4.8% in part because the number of people in the labor force declined.
  • The U.S. trade deficit grew to a record $73 billion as imports have grown 16% since the start of the pandemic and exports have only grown 4%.

The week started with the Standard & Poor’s 500 Index experiencing daily gains and losses of about one percent. Other major U.S. indices saw sizeable daily swings in value, too. Lu Wang of Bloomberg reported:

The harrowing reversals reflect a particularly stark divide between bull and bear cases in markets right now. On one side, risk appetites are being constrained by lingering uncertainty over the government debt ceiling, tightening Federal Reserve policy and disrupted supply chains. At the same time, sentiment is being buttressed by improving [COVID-19] trends, an economy that keeps chugging along and forecasts for more double-digit earnings growth from corporate America.

Lu Wang, Bloomberg

Considering how volatile things were early in the week, investors were remarkably sanguine about Friday’s less-than-stellar employment report. The Bureau of Labor Statistics indicated that less than 200,000 jobs were created in September. According to Ben Levisohn of Barron’s, the number was below expectations and provided relatively little insight to economic growth.

“Yes, the U.S. added just 194,000 jobs in September, well below forecasts for 500,000, and that’s the kind of miss that would suggest a slowing economy. The number, though, was close to meaningless, given the seasonal adjustments – which may have skewed it lower – and by comparison to the household survey, which showed more than 500,000 new jobs as the unemployment rate fell to 4.8%.

Consumers, investors, and central bankers are also expending a lot of energy worrying about power – the kind that’s generated by natural gas, oil, coal, wind, sun and other sources. Supply and demand issues in energy markets have caused prices to rise and is pushing inflation higher, according to Julia Horowitz of CNN Business.

This Week in the Markets

For the second consecutive month, the U.S. job market created far fewer jobs than expected. September’s report showed only 194,000 jobs were created, missing expectations by nearly 300,000. A deeper look at the data shows the report wasn’t as bad as indicated by the overall number.

Private payrolls climbed 317,000, and the previous two months were revised a combined 169,000 higher. The government sector underperformed expectations. On a seasonally adjusted basis, government payrolls dropped by 123,000 as public schools did not hire as many staff as expected. Education payrolls also declined in the private sector.

Moving goods around remains a major issue. The U.S. trade deficit has grown to a record $73 billion. Imports have surged 16% since the pandemic began, as sending out stimulus checks to individuals caused a surge of consumption, and some of that money inevitably went to purchase foreign goods. Other countries did not have the same focus, and a similar benefit has not reached the U.S. Exports have only grown 4% since the start of the pandemic. Concerns about ports unloading ships and the lack of transportation in some countries is also weighing on expectations for economic growth.

A modicum of bipartisanship pushed risk of government default out two months. The S&P 500 and MSCI ACWI both jumped in another volatile week. Concerns about increasing long-term interest rates contributed to a slide in bond prices. The Bloomberg U.S. Aggregate Bond Index sagged. The Consumer Price Index and retail data lead a busy week of economic releases.

Low Energy

Currently, there is a mismatch in energy supply and energy demand in many parts of the world. In some places, it is creating issues that countries haven’t experienced in some time. For instance:

  • In Europe, the cost to heat the average home rose about fivefold from September 2020 to September 2021, according to The Economist.
  • In India, where about 70 percent of electricity is generated by burning coal, coal supplies are running low, according to Arunoday Mukharji of BBC.
  • In China, rolling blackouts have been implemented to address an electricity shortage, reported Peter Hoskins of BBC.
  • In Lebanon, power plants went offline over the weekend and the country is expected to be without power for several days, reported Laila Bassam of Reuters.
  • In the U.S., oil prices are at a seven-year high, and the price of gasoline was above $3 a gallon. In some places, it was above $5 a gallon, reported Pippa Stevens of CNBC.

There are many reasons for the current energy shortage, reported Will Englund of The Washington Post.

The economic recovery from the pandemic recession lies behind the crisis, coming after a year of retrenchment in coal, oil and gas extraction. Other factors include an unusually cold winter in Europe that drained reserves, a series of hurricanes that forced shutdowns of Gulf oil refineries, a turn for the worse in relations between China and Australia that led Beijing to stop importing coal from Down Under, and a protracted calm spell over the North Sea that has sharply curtailed the output of electricity-generating wind turbines.

Will Englund, The Washington Post

The energy shortage may be more challenging to overcome than some other types of shortages, opined The Economist, because investment in fossil fuels has been declining as the world moves toward lower emissions and greener energy sources. “The long-term challenge is to smooth out volatility as the switch to renewables continues.”

Time of the Season

The September jobs report released on Friday signaled a stark decline in hiring. It missed estimates by a large margin. Expectations were for 479,000 jobs to be created, but the reported number was less than half that at only 194,000. That was also the lowest jobs number posted so far in 2021, likely caused by a combination of the Delta variant slowing hiring decisions and some employers being unable to find workers.

The report wasn’t as weak as it looked. Data for the previous two months was revised upward, with August up to 366,000 (an increase of 131,000) and July up to 1,090,000 (an increase of 38,000). While September’s jobs number was much lower than expected, the unemployment rate decreased to 4.8% from 5.2% in August. This was due partly to some workers choosing to end their job searches and exit the labor force.

There was a stark contrast between private and government payrolls in September. Private payrolls were closer to expectations. September private payrolls increased 317,000 compared to expectations for 470,000 new jobs. If the previous month’s revisions are included, that is close to expectations. The main detractor from private hiring was in private education, which saw a decrease of 18,900 jobs. Reduced educational hiring depressed government hiring even more. Government payrolls fell by 123,000 in September. The largest detractor was from state and local education.

Some of the most significant factors affecting the number of education jobs are the seasonal adjustments used in the reports. Seasonal adjustments are used to simplify comparisons between a series of months. Schools hire a lot of workers in September to fill key rolls not needed when school is out of session. Because those hires occur every year, the government adjusts the statistics to reflect normal seasonal patterns. Without the seasonal adjustment, government payrolls would have been 877,000 higher instead of 123,000 lower.

So rather than saying public schools are employing 123,000 fewer people than last month, it would be fairer to say they added 123,000 fewer people between August and September, assuming the overall job market was unchanged. The effect works in the opposite direction. Leisure and hospitality payrolls would have fallen 413,000 instead of rising 74,000 because the summer travel season ended.

Seasonal adjustments remain the right way to analyze data even though COVID-19 has made seasonal adjustments more difficult. For instance, if a school district started two weeks later than normal, it might create a big miss one month and a big increase the next as hiring didn’t follow the normal seasonal pattern. The Bureau of Labor Statistics noted the challenges with making seasonal adjustments during the pandemic:

Recent education employment changes are challenging to interpret, as pandemic-related staffing fluctuations in public and private education have distorted the normal seasonal hiring and layoff patterns.

The Bureau of Labor Statistics

Seasonal adjustments are one of the reasons we look at many aspects of the data, rather than just the surface report. Our goal is not just to stay on top of the data, but to get to the bottom of it.

Did you Know? This Week in History

October 11, 2002: Jimmy Carter Wins Nobel Peace Prize

On October 11, 2002, former President Jimmy Carter won the Nobel Peace Prize “for his decades of untiring effort to find peaceful solutions to international conflicts, to advance democracy and human rights, and to promote economic and social development.” Carter, a peanut farmer from Georgia, served one term as U.S. president between 1977 and 1981. One of his key achievements as president was mediating the peace talks between Israel and Egypt in 1978. The Nobel Committee had wanted to give Carter the prize that year for his efforts, but was prevented from doing so by a technicality, as he had not been nominated by the official deadline.

After he left office, Carter and his wife Rosalynn created the Atlanta-based Carter Center in 1982 to advance human rights and alleviate human suffering. Since 1984, they have worked with Habitat for Humanity to build homes and raise awareness of homelessness. Among his many accomplishments, Carter has helped to fight disease and improve economic growth in developing nations and has served as an observer at numerous political elections around the world.

Carter was the third U.S. president to receive the award, worth $1 million, following Theodore Roosevelt (1906) and Woodrow Wilson (1919). Former president Barack Obama won in 2009.

Weekly Focus

Don’t be afraid to give up the good to go for the great.

John D. Rockefeller, Business Magnate and Philanthropist

You can’t go back and change the beginning, but you can start where you are and change the ending.

C.S. Lewis, Writer and Theologian