Why Were Job Number Forecasts So Wrong?

October 8, 2021

The U.S. economy added just 194,000 jobs in September, an unimpressive number by any metric, but one that is even more disappointing when compared to the 500,000 new jobs that economists had expected. The Wall Street Journal provides an interesting analysis of why job growth was so anemic and why projections were so far off.

The Journal’s first note is that despite the month’s disappointing numbers, September’s jobs report also upwardly revised the previous two month’s totals, showing an additional 169,000 jobs created. 

Their second argument is that September’s low number was in part due to a loss of 166,000 state and local education jobs. In terms of raw data, there were more education-related positions filled last month than in August, but far fewer than would normally be expected at the start of a new school year. That gap between real data and expectations translated to an outright drop in employment during the Labor Department’s seasonal adjustment process.

The Journal goes on to argue that the reduction in educational hiring is indicative of the real issue with the month’s jobs report, namely the slow recovery of the labor participation rate. 

The portion of the population that is either currently employed or actively looking for work was 61.6% in September. Prior to the pandemic, the labor participation rate sat at 63.3%. To return to that level, the labor force would need to gain 4.3 million people.

Economists are doubtful that the labor participation rate will return to the pre-pandemic level any time soon, with an aging workforce opting for retirement and younger workers reassessing their priorities during the pandemic and leaving the workforce to care for their families. Though with vaccination rates rising and case numbers dropping, as well as enhanced unemployment benefits coming to an end, economists do expect the labor participation rate to grow at a faster pace in the coming months.

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