Daily Business Briefing
Oct. 8, 2021, 9:21 a.m. ET
Oct. 8, 2021, 9:21 a.m. ET
The latest coronavirus wave led to a second straight month of disappointing job growth in September, as Americans avoided restaurants and travel and were reluctant to rejoin the work force.
U.S. employers added 194,000 jobs in September, the Labor Department said Friday. That was down from 366,000 in August and far below the more than one million jobs added in July, before the more contagious Delta variant led to a spike in coronavirus cases across much of the country. The leisure and hospitality sector, which had been a main driver of job growth before Delta emerged, added fewer than 100,000 jobs for the second straight month.
The unemployment rate fell to 4.8 percent, but that was partly a result of people leaving the labor force entirely — a sign that public health fears and other disruptions from Covid are still keeping people from looking for work.
“Employment is slowing when it should be picking up because we’re still on the course set by the virus,” said Diane Swonk, chief economist for the accounting firm Grant Thornton.
The data released on Friday was collected in mid-September, when the Delta wave was near its peak. Since then, cases and hospitalizations have fallen in much of the country, and more timely data from private-sector sources suggests that economic activity has begun to rebound. If those trends continue, job growth could approach its pre-Delta pace later this fall.
“This report is a glance in the rearview mirror,” said Daniel Zhao, an economist at the career site Glassdoor. “There should be some optimism that there should be a reacceleration in October.”
Nonetheless, the recent slowdown shows the economy’s continued vulnerability to the pandemic, and the challenges that will remain even once it is over. There are five million fewer people on U.S. payrolls than in February 2020, and 2.7 million people have been out of work for six months or more, the standard threshold for long-term unemployment. Yet the number of job openings is at a record high, and many employers report having a hard time filling positions.
Earlier this year, many economists and policymakers hoped that September would be the month when that logjam began to abate, as schools and offices reopened and expanded unemployment benefits ended. That easing hasn’t happened. The resurgence of the pandemic delayed office reopenings and disrupted the start of the school year, and made some people reluctant to accept jobs requiring face-to-face interaction. At the same time, preliminary evidence suggests that the cutoff in unemployment benefits has done little to push people back to work.
“I am a little bit puzzled to be honest,” said Aneta Markowska, chief financial economist for the investment bank Jefferies. “We all waited for September for this big flurry of hiring on the premise that unemployment benefits and school reopening would bring people back to the labor force. And it just doesn’t seem like we’re seeing that.”
Ms. Markowska said more people might begin to look for work as the Delta variant eases and as they burn through savings accumulated earlier in the pandemic. But some people have retired early or have found other ways to make ends meet and may be slow to return to the labor force, if they come back at all. That could have long-lasting economic effects, particularly if the recent slowdown in hiring persists.
In the meantime, employers are raising wages and offering other inducements to lure applicants. Average earnings rose 19 cents an hour in September and are up more than $1 an hour over the last year, after a series of strong monthly gains.
That, combined with benefits such as the child tax credit that have provided a financial cushion to low-income families, has arguably put workers in their strongest bargaining position in decades, said William M. Rodgers III, director of Institute for Economic Equity at the Federal Reserve Bank of St. Louis.
“This period right now represents the first time in a long time where people feel they have some security,” Mr. Rodgers said. “And it’s probably, for many of them, an odd feeling, because they haven’t had it for a long time.”
U.S. stock futures and government bond yields fluctuated on Friday after the government reported that U.S. employers added far fewer jobs in September than expected, while wage gains were faster than anticipated.
Employers added 194,000 jobs last month, compared with economists expectations of about 500,000, the Labor Department said.
Employment in the leisure and hospitality sectors rose by 74,000 jobs in September, after flatlining last month amid evidence that labor shortages and the spread of the Delta variant were hampering hiring. The jobs data released on Friday was collected in mid-September, when the Delta wave was near its peak, but since then, cases and hospitalizations have fallen.
S&P 500 futures swung between gains and losses after the report. Stocks in Europe were lower, with the Stoxx Europe 600 index was down 0.2 percent.
Government bond yields also fluctuated, falling slightly immediately after the jobs report was released before rebounding somewhat.
Slowing jobs gains could weigh on decisions at the Federal Reserve to reduce monetary stimulus, but traders and policymakers are also watching closely for signs that higher prices will lead to longer lasting inflation and might prompt more action from the central bank. The jobs report showed average hourly wages rose 0.6 percent in September, more than economists were forecasting.
The yield on two-year Treasury notes was little changed at 0.30 percent and the yield on 10-year notes was little changed at 1.58 percent.
The report from the Labor Department also showed the unemployment rate fell to 4.8 percent in September from 5.2 percent the previous month. Though, the participation rate in the labor force dipped to 61.6 percent.
Federal Reserve officials are likely to keep a keen eye on Friday’s employment report, as their two jobs — trying to foster full employment while also keeping a lid on inflation — increasingly prove to be a balancing act.
Jerome H. Powell, the Fed chair, and his colleagues have been pumping $120 billion into markets each month and holding interest rates near zero to keep borrowing costs cheap and credit flowing easily, helping to stoke demand and encouraging employers to expand and hire.
Officials have signaled that they will soon begin to slow the bond purchases — something they could announce as soon as November based on cumulative progress in the labor market, even if the September jobs report isn’t a blockbuster. But they have repeatedly promised to continue supporting the economy with low rates for as long as it needs their help. Deciding when it’s time to pull back that aid could be a trickier judgment call than central bankers had expected.
After years in which inflation climbed very slowly — leaving the Fed with latitude to help push the unemployment rate steadily lower — it has taken off in 2021. The pop has been driven higher almost entirely by pandemic quirks. Strong consumer demand for refrigerators and computers has overwhelmed supply chains at the same time as coronavirus-tied factory shutdowns have delayed parts production. The combination has led to shortages for items as varied as rental cars and washing machines, pumping up price tags.
“This is not the situation that we have faced for a very long time, and it is one in which there is a tension between our two objectives,” Mr. Powell said during a recent public appearance. He later added that “managing through that process over the next couple years, I think, is the highest and most important priority, and it’s going to be very challenging.”
That ramps up attention on each of the Fed’s two targets, full employment and steady inflation that averages 2 percent over time.
Central bank officials are hoping that jobs lost during the pandemic return soon, but progress in recent months has been stop-and-start. Economists think employers probably added about half a million jobs last month, up from a disappointing 235,000 in August.
They are also carefully watching inflation, which came in at 4.3 percent in August. Officials expect today’s price pressures to prove temporary. But it has become increasingly clear that, while the drivers are mainly one-offs, they could linger for months. Shipping routes are struggling to catch up, pandemic outbreaks continue to force factory closures, and now a spike in raw goods prices threatens to keep price gains elevated.
The Fed is closely watching to make sure that longer-term inflation expectations remain at healthy levels. Should consumers and investors come to expect higher inflation, they might change their behavior, creating a self-fulfilling prophesy.
Some key gauges of consumer price outlooks have begun moving up. That raises an unhappy possibility: The Fed might find itself under pressure to lift interest rates and cool off the economy before employment has fully rebounded.
While there is little that a central bank can do to spur better port capacity or more apartments, it could arguably cool off demand by lifting interest rates. With fewer consumers buying condos, couches and lawn furniture, factories, homebuilders and cargo ships might catch up, helping to alleviate cost pressures.
But higher rates would also slow business growth and hiring, trapping the pandemic unemployed on the labor market’s sidelines. That’s why Mr. Powell and his colleagues are counseling patience, hoping to avoid overreacting to a price pop that will peter out.
“They’re always walking a tightrope, but that rope is getting a little bit thinner,” said Nela Richardson, chief economist at the payroll and data company ADP. She expects that the Fed will rein in bond-buying with inflation in mind, but doubts that higher prices will prompt rate increases. Fed forecasts have suggested that those will come next year at earliest.
“I think they’re trying to see past this moment,” she said.
The Economic Injury Disaster Loan Advance, an emergency relief program hastily rolled out in the early days of the pandemic, had such poor fraud protections that it improperly doled out nearly $4.5 billion to self-employed people who said they had additional workers — even those who made wildly implausible claims, like having one million employees.
The $20 billion program offered small businesses immediate grants of up to $10,000 in the months after the pandemic shuttered much of the economy. But there was no system to catch applications with “flawed or illogical information,” Hannibal Ware, the Small Business Administration’s inspector general, wrote in a report released on Thursday.
Nearly 5.8 million applicants received grants based on their company’s head count: $1,000 each for up to 10 workers. Sole proprietors and independent contractors who employed only themselves should have collected a maximum grant of $1,000 — but many collected bigger checks.
Some of the claims were outright absurd. Hundreds of applicants received the maximum grants after saying that they employed more than 500 workers, a number that would generally make them ineligible for the small business program. Fifteen said they had one million employees — a figure that would put them in league with Amazon and Walmart.
The report, which described how the agency could have spotted bogus applications by taking even rudimentary steps to prevent fraud, was the latest black eye for the S.B.A. READ THE ARTICLE →
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Tesla will move its headquarters from California to Texas, where it is building a new factory, its chief executive, Elon Musk, said at the company’s annual shareholder meeting on Thursday. The move makes good on a threat that Mr. Musk issued more than a year ago when he was frustrated by local coronavirus lockdown orders that forced Tesla to pause production at its factory in Fremont, Calif. Mr. Musk said the company would keep that factory and expand production there. READ MORE →
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Google said on Thursday that it would no longer display advertisements on YouTube videos and other content that promote inaccurate claims about climate change. The decision, by the company’s ads team, means that it will no longer permit websites or YouTube creators to earn advertising money via Google for content that “contradicts well-established scientific consensus around the existence and causes of climate change.” And it will not allow ads that promote such views from appearing. READ MORE →
WASHINGTON — The tenure of Kristalina Georgieva as managing director of the International Monetary Fund faces a pivotal moment on Friday, when the fund’s executive board will meet to decide whether she should continue to be its leader after allegations that she pressured staff to manipulate a report to placate China when she was a top World Bank official.
This week, the executive board spent hours questioning Ms. Georgieva about her actions. It also interviewed lawyers from WilmerHale, the firm that conducted the World Bank’s internal review of the circumstances surrounding the Doing Business survey. The review, published last month, concluded that Ms. Georgieva had played a central role in meddling with the report, raising questions about her judgment and ability to continue leading the I.M.F.
Ms. Georgieva has denied the allegations, and in a meeting with the board on Wednesday she offered a forceful rebuttal.
“The WilmerHale Report does not accurately characterize my actions with respect to Doing Business 2018, nor does it accurately portray my character or the way that I have conducted myself over a long professional career,” Ms. Georgieva said in a statement to the board, which was obtained by The New York Times.
Mr. Georgieva, a Bulgarian economist who assumed the top I.M.F. job in 2019, also criticized the nature of the World Bank investigation and said she had been misled.
“The email from WilmerHale requesting my participation said clearly that I was not a subject of the investigation and assured me that my testimony was confidential and protected by World Bank staff rules, which guarantee due process,” Ms. Georgieva said. “None of this proved to be true.”
The controversy has raised questions about China’s influence in multilateral institutions. It has also become a distraction for the I.M.F. as it is trying to help coordinate the global economic response to the pandemic. Prominent economists have publicly debated whether Ms. Georgieva should step down. The Economist magazine called last month for her resignation.
The United States, which is the fund’s largest shareholder, has yet to offer public support, and officials have declined to say if she should stay in the job.
“There is a review currently underway with the I.M.F. board, and Treasury has pushed for a thorough and fair accounting of all the facts,” said Alexandra LaManna, a Treasury spokeswoman. “Our primary responsibility is to uphold the integrity of international financial institutions.”
Former World Bank officials have described Ms. Georgieva as a polarizing figure, but she has generally won praise at the I.M.F. When she assumed the job, she quickly restructured the fund to give her more direct control over its daily operations. That included removing David Lipton, a longtime I.M.F. official and its first deputy managing director, before his term expired.
Mr. Lipton is now a top adviser to Treasury Secretary Janet L. Yellen, who will have significant input as to whether Ms. Georgieva remains in the job.
Treasury officials have been debating how to respond to the allegations against Ms. Georgieva. A person familiar with the deliberations said that Mr. Lipton has been among the officials who have been supportive of Ms. Georgieva, who he worked closely with while she was at the World Bank and he was at the I.M.F.
Republicans and Democrats in Congress have expressed concern about Ms. Georgieva’s actions at the World Bank and called on Ms. Yellen to ensure “full accountability.”
The United States traditionally selects an American to be president of the World Bank, while the managing director of the I.M.F. is usually from Europe.
The I.M.F.’s executive board could make a decision about whether it continues to have confidence in Ms. Georgieva when it meets on Friday.
The annual meetings of the World Bank Group and the International Monetary Fund take place next week.
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