Economic News & Analysis—October 22, 2013

Employment situation: Wait and see?

By Brian Jacobsen, Ph.D., CFA, CFP®, Chief Portfolio Strategist

The employment situation report covering September was finally released. It was supposed to be released on October 4, but the partial government shutdown delayed it. It was refreshing having a payrolls Tuesday instead of a payrolls Friday. What wasn’t refreshing was the 148,000 payrolls number. That was significantly below my expectation of 170,000. However, August’s number was revised up to 192,000. There was little change in the number of long-term unemployed (27 weeks or longer) or the labor force participation rate. The Federal Reserve (Fed) is somewhat vindicated in its decision not to start tapering in September.

What effect will the partial government shutdown have on the October report, to be released in November? It will probably be a little, but not a lot. The key is timing. Payroll numbers for the report are calculated for the pay period that includes the 12th of the month. Businesses may have delayed hiring in anticipation of budget problems out of D.C. Their fears proved to be well founded. Given that the shutdown ended on October 17, it’s likely that the October report will show private payrolls that are somewhat depressed. That should not be seen as a change in the upward trend of the economy, though. There was probably a pickup in hiring after the shutdown ended.

What about the federal payrolls number? Federal employees have a pay-period calendar published by the General Services Administration, and that pay period in October runs from the 6th to the 19th. Given that the partial government shutdown ended on October 17, federal employees furloughed should be counted. However, they will only have three days of pay counted. They will get retroactive pay, but it doesn’t count when calculating wages for the employment situation report. As a result, while the payrolls number shouldn’t be affected, the number of hours worked will be.

The key takeaway is that the October report—at least as it relates to the number of people on the payrolls—shouldn’t be distorted too much by the furlough, though it will likely understate the strength of the economy. The Fed will likely err on the side of caution and wait to see what the November and December numbers look like before changing its policy of asset purchases. That should keep ample liquidity flowing through the economy and the markets

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