The Job Market Warmed Up in October, With Still More Fuel in the Tank

Hiring picked up in October as the Delta surge waned, with the vast majority of industries contributing job gains, particularly leisure and hospitality. The jobs report, released by the U.S. Bureau of Labor Statistics today, clearly points to a demand-driven recovery where rapid hiring is shrinking the ranks of unemployed workers, especially long-term unemployed workers, but not yet drawing workers who are missing from the labor force back off the sidelines.

The economy added 531k jobs in October, and totals for the prior two months were revised upwards by 235k. Recent wage hikes in leisure and hospitality finally paid off. The industry led the way in the employment gains this month with 164K net new jobs. Almost three quarters of the new jobs in the industry were added by restaurants. This is quite an important step in the path to full recovery since industry still accounts for one third of the lost jobs compared to pre-pandemic levels.

Unemployment fell from 4.8% to 4.6%, and annual wage growth registered 4.9%. Labor force participation remained flat, but with strong wage growth, low unemployment, and COVID conditions improving, that will likely start to change.

The report suggests that job growth could accelerate in the coming months, for the following reasons:

1. COVID is no longer as severe a drag on the labor market.

The number of Americans who were absent from work due to illness, the number teleworking due to COVID, and the number prevented from seeking work due to COVID all fell as Delta waned. That is an encouraging sign that “missing workers” could return in the coming months, too.

Absent the pandemic, there would be about 5 million more people in the labor force. If pandemic conditions continue to improve, and the unemployment rate continues to fall, we could see large numbers return, easing labor shortages and hiring constraints.

2. Workers are returning to offices.

The share of workers who teleworked fell from 13.2% to 11.6%. The return of workers to offices could unleash the recovery of businesses like restaurants, cafes, salons, and dry cleaners in central business districts in the coming months.

Hiring in restaurants also picked up significantly with 119K net new jobs, suggesting that workers are not hesitant to take on the jobs that require close contact.

3. Schools still have much catching up to do.

The nation’s schools started the school year with 723k fewer staff on payroll than before COVID. That is despite Congress’s allocation of almost $200 billion to public schools in COVID relief bills—far more than typically flows to schools through the federal budget. It’s also despite the arguable need for more staff in schools now to allow for smaller classroom sizes, provide remedial instruction to overcome learning loss, and provide counseling to students who have lost primary caregivers to COVID.

Many schools were blindsided by how difficult it was to fill vacancies at the start of the school year, and will now need to play hiring catch-up in the coming months. While the topline figures in the report pointed to a decline, that was the result of seasonal adjustments. Not seasonally adjusted figures point to a substantial increase across local, state, and private schools.