Economic Update: Job Growth, Productivity & Wages

Economic Update: Job Growth, Productivity & Wages

In the recently released monthly job report from the U.S. Labor Department we learned that nonfarm payrolls growth picked up in October, with 531,000 jobs added back to the economy. This is in line with the acceleration we expected would occur as the headwinds from the Delta variant continue to fade.

There is a good chance hiring picks up even more in the near term because 218,000 retail jobs were added in October, not seasonally adjusted. That is larger than what we typically experienced pre-crisis around this time of the year and perhaps a sign that retailers are starting their holiday hiring early due to concerns about labor shortages.

Additional help may come from the long-awaited service sector rebound gaining momentum, although winter weather (snow causing consumers to stay in) and lingering variant risks are potential obstacles. Regardless, as strong as the labor market appears it still needs all the help it can get because total employment in America remains 4.2 million payrolls below the pre-crisis peak, and even if job growth continued at the October pace it would still take another 8-9 months to completely erase this deficit.

Other highlights from the latest job report include that the share of workers who teleworked because of the pandemic continued to steadily decline, now down to just 11.6 percent. There is of course a lot of occupation-specific variability in this metric, though, as computer and mathematical occupations, for instance, still had a remote/hybrid work percentage of 42.8 percent in October, while only 1.4 percent of workers in the production, transportation, and material moving sector worked remotely last month. Across all industries, though, telework is well off of the crisis high.

Another noteworthy development in the latest job report is that wage growth may be starting to moderate, or at least no longer accelerating. Specifically, when looking at annualized average hourly earnings growth over the last three months it has decelerated significantly compared to the prior three months in certain key industries such as transportation, warehousing, and leisure and hospitality. This is another potential sign that the rapid wage growth we have seen in some industries this year is not an indication of a permanent shift in worker bargaining power (an inflationary precondition), but instead a temporary result of the unique circumstances of this economic recovery.

The obvious caveat is that the easing in wage pressures may just be a side-effect of the earlier Delta-variant-related slowdown in job growth, and therefore wage gains could accelerate again in the months ahead if hiring continues to pick back up. Altogether this simply supports our earlier expectation that more clarity on the trajectory of employment costs will not be available until Q1 or Q2 2022. Productivity growth could of course also help take pressure off of wages, or more so the inflationary potential of rising employment costs, which is why the latest report showing that productivity growth tumbled at an annualized rate of 5.0 percent in the third quarter might be discouraging.

However, quarterly productivity data can be quite volatile, especially given our current unusual economic backdrop, and ultimately the long-term impact on productivity from Q3’s 5.0 percent decline is probably about the same as the 10.6 percent jump we saw in Q2 2020, i.e. not much. This is why we prefer to look at productivity on a much longer time scale, and to this end, the trend remains encouraging in terms of Americans being able to experience wage growth without a permanent acceleration in goods and services prices. Moreover, increasing capital spending, particularly on technology, to boost productivity allows wages to rise faster than prices, averting a 1970s-style wage-price spiral.

Small businesses are increasingly doing a lot of the heavy lifting on this front, as evidenced by the latest NFIB survey which showed that the percentage of firms planning to boost their capital expenditures over the next 3 to 6 months has surged by the most since 2018. Easy financial conditions support such investments, and the Q4 Senior Loan Officer Survey conducted by the Federal Reserve found that there was a net easing in lending standards on commercial and industrial loans to small firms. The return on productivity investments, though, can take a while to show up, which is another reason we have stated that it could still be a few more quarters before employers experience any meaningful relief on the input costs front.

What To Watch This Week:


  • 3-Yr Note Settlement
  • 10-Yr Note Settlement
  • 30-Yr Bond Settlement
  • Empire State Manufacturing Index 8:30 AM ET


  • Retail Sales 8:30 AM ET
  • Import and Export Prices 8:30 AM ET
  • Industrial Production 9:15 AM ET
  • Business Inventories 10:00 AM ET
  • Housing Market Index 10:00 AM ET
  • Raphael Bostic Speaks 12:00 PM ET
  • Patrick Harker Speaks 2:55 PM ET
  • Mary Daly Speaks 3:30 PM ET


  • MBA Mortgage Applications 7:00 AM ET
  • Housing Starts and Permits 8:30 AM ET
  • John Williams Speaks 9:10 AM ET
  • EIA Petroleum Status Report 10:30 AM ET
  • Loretta Mester Speaks 11:20 AM ET
  • Loretta Mester Speaks 12:40 PM ET
  • Mary Daly Speaks 12:40 PM ET
  • 20-Yr Bond Auction 1:00 PM ET
  • Charles Evans Speaks 4:05 PM ET
  • Raphael Bostic Speaks 4:10 PM ET


  • Raphael Bostic Speaks 7:30 AM ET
  • Jobless Claims 8:30 AM ET
  • Philadelphia Fed Manufacturing Index 8:30 AM ET
  • John Williams Speaks 9:30 AM ET
  • E-Commerce Retail Sales 10:00 AM ET
  • Leading Indicators 10:00 AM ET
  • EIA Natural Gas Report 10:30 AM ET
  • 2-Yr Note Announcement 11:00 AM ET
  • 5-Yr Note Announcement 11:00 AM ET
  • 7-Yr Note Announcement 11:00 AM ET
  • Kansas City Fed Manufacturing Index 11:00 AM ET
  • 10-Yr TIPS Auction 1:00 PM ET
  • Charles Evans Speaks 2:00 PM ET
  • Mary Daly Speaks 3:30 PM ET


  • Christopher Waller Speaks 10:45 AM ET
  • Baker Hughes Rig Count 1:00 PM ET

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