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Wells Fargo Senior Economist Sarah House breaks down the September jobs report

Sarah House, Wells Fargo Senior Economist, joined Yahoo Finance Live to discuss the September jobs report.

Video Transcript

BRIAN CHEUNG: But let's stick with the jobs report. Again, the report from the BLS covering the month of September showing only 194,000 payroll gains, a sharp miss from what the Street was estimating at around 500,000. But the unemployment rate ticking down by 0.4 percentage points between August and September. But Labor Secretary Marty Walsh stopped by Yahoo Finance earlier today to offer his thoughts on the employment report. Take a listen.

MARTY WALSH: This report that we're looking at today is a complex report. And I don't think it's as bad as what everyone's reporting. We look at the sectors. Obviously, we had 194,000 jobs, 317,000 in the private sector. We saw gains in manufacturing and retail that are good to see. In some other areas, the hospitality number, about 74,000 job gain there. Unfortunately, it's under what people projected. And that's-- there's a direct correlation to the rise in the delta variant.

Also, in the educational sector, there's something going on there that we have to do some more research on. And particularly the educational public sector number, I think a lot of people expected with school starting that would see that number a lot higher. And certainly, that number was, in some cases, not as disappoi-- I'll say it was disappointing.

BRIAN CHEUNG: Again, right there, that was the Labor Secretary Marty Walsh. So let's get a little bit more of a breakdown on that September jobs report with Sarah House. She's a senior economist at Wells Fargo. Sarah, it's great to have you on the program this afternoon. You were hearing the Labor Secretary talk about the idea of education having a very interesting impact on this report. I know that's something you were digging into as well. Is that what's to blame for the estimates missing number that we saw on the top line for payrolls?

SARAH HOUSE: So the decline we saw in seasonally adjusted education payrolls was a big part of this myth. So September is usually the biggest month that we see schools hire. But with the labor shortages that we're seeing across both the public and private sector, that showed up as a decline this month with-- once you apply those typical seasonal factors, the number of [INAUDIBLE] to decline, even though we just didn't see as much hiring as we usually did. So it exaggerates the number that we saw today. But I think it speaks to just the ongoing labor shortages that we continue to see in the labor market right now.

SEANA SMITH: Sarah, help us sum up this report because I think a lot of people are looking at that headline number, which was a massive miss, when you take a look at the estimates. We just heard from Secretary Walsh saying that he didn't believe that it was as weak as that number implied. You echoed a similar sentiment in your note. Why exactly, though, do you say or do you make that argument?

SARAH HOUSE: Well, I think when we look at the overall state of the labor market right now, demand remains exceptionally strong. So we see that in terms of the record number of job openings, not just from JOLTS, but from the Indeed hiring numbers. We see that in terms of consumers, their own view, with jobs plentiful, the highest on record. What this comes down to is that workers are still slow to return to the workforce.

And that might be because they're so worried about COVID. They're still trying to get their childcare situation settled down. And I think that's a very different dynamic than demand being weak. And that's the reason for soft hiring, is the fact that people are still either not able or not willing to come back into the labor market, which portends different things for things like wages, where, for those who are working, they are seeing that pay off in terms of higher compensation.

BRIAN CHEUNG: Now, let's talk a little bit more about the composition of the labor force, because as you point out, there was about 183,000-person drop in the labor force. And a lot of that's going to marginally attach to maybe those who, over the last four weeks, haven't been actively looking. Do you think that's to explain for the unemployment rate ticking down? Because people might be looking at that aspect of the headline numbers and saying, well, isn't that a good thing when, in reality, there could be a little bit more nuance to the way that you're calculating the denominator in the unemployment rate?

SARAH HOUSE: So there certainly is some nuance there. So there's two ways that the unemployment rate can decline. So one would be an exodus from the labor force, which we saw to some extent. But the other is unemployed workers actually moving to employment. And what we saw in September was both things happening. So the labor force declined by about 700-- or sorry, excuse me-- by about 200,000. But the number of workers reporting that they are unemployed declined by about 700,000.

So I'd say, on net, this drop in the unemployment rate that we saw is, by and large, a genuine positive drop. So if you look at the household measure of employment-- so this is a different way of calculating the number of workers in the economy-- that actually rose by over 500,000. So this is another way that the jobs report today maybe isn't quite as soft as what that headline payroll number would indicate.

SEANA SMITH: Sarah, what does all this mean for the Fed's taper timeline? Does it change at all?

SARAH HOUSE: Well, it certainly keeps the November meeting live. So I think if we saw something closer to 400,000, or certainly, the consensus of 500,000, the taper discussion and debate probably would have been closed by now. But I think the fact that we did see another disappointing payroll number, the fact that we didn't see as many workers return to the labor market as I think a lot of people were hoping with in the September data, considering we did have those extra unemployment insurance benefits-- I mean, we did get kids back in school this month-- I think that is going to make the taper announcement in November-- it's far from a done deal.

So we'll be watching how FOMC officials comment over the next couple of weeks before the blackout period starts. And then we think it's going to be a pretty robust discussion come November 2nd and 2rd.

SEANA SMITH: And Sarah, we heard from President Biden earlier today. He was talking about this report. He was taking the view-- and obviously, it's no surprise-- of what we just heard from Secretary Walsh, saying that it's not that bad. But I want to play a quick bite, just in terms of what he was saying about what needs to be done in order to push this recovery along. Let's take a listen.

JOE BIDEN: The jobs numbers also remind us that we have important work ahead of us and important investments we need to make. America is still the largest economy in the world. We still have the most productive workers and the most innovative minds in the world. But we risk losing our edge as a nation if we don't move.

SEANA SMITH: Sarah, from your perspective, I guess, what needs to be done? What does Congress need to do in order to help really boost the economy and the recovery at this point?

SARAH HOUSE: Well, we're certainly seeing a lot of discussion over different investments that can be made, so whether it's physical infrastructure, whether it's a softer, more human infrastructure, things like childcare. And I think that's all part of the discussion. So when it comes to the labor force and participation, we saw a decrease in the participation rate for women this month.

And so, I think that does speak to some of the childcare issues that remain ongoing. And so, to the extent that you can provide some of that infrastructure, I think that could help your overall labor supply and help these businesses that have been struggling so much to hire in recent months help them get staffed up

BRIAN CHEUNG: Sarah House, senior economist at Wells Fargo, thanks for breaking all of that down for us here on Yahoo Finance.