Friday, October 2, 2020

Jobs report - a little more progress, but we are still in a major hole

In the final jobs report before the November elections, we continued to slog back from the major hole we were put in earlier this year. But the rate of growth continues to slow, and we have a LONNG way to go without a lot of juice to help us get there.

A main headline in the report comes from another monthly decline in the unemployment rate.
In September, the unemployment rate declined by 0.5 percentage point to 7.9 percent, and the number of unemployed persons fell by 1.0 million to 12.6 million. Both measures have declined for 5 consecutive months but are higher than in February, by 4.4 percentage points and 6.8 million, respectively.
While the topline unemployment rate is back below 8% (at 7.9%), last month's drop wasn't entirely for a good reason. It’s because nearly 700,000 people dropped out of the labor force in September, which accounted for most of the decline.

Unemployment rate, US September 2020

Aug unemployment rate 8.42%

Sept unemployment rate with Aug labor force 8.25% (-0.17%)

Sept unemployment rate with Sept labor force 7.86% (-0.39%)

Granted, there was a huge jump in employment in the household survey last month, so maybe September’s decline is a regression to the norm. But the percentage of people working (as measured in the employment-population ratio) is still at the lowest levels this country has seen since early 1976. The US participation rate is also at its lowest level since the mid-1970s, 2% lower than it was at the start of this year.

This becomes important when you realize that if we still had the January 2020 labor force of 164.6 million, and the same amount of people “employed” as we had in the September jobs report, our unemployment rate would be at 10.4%, not 7.9%.

Another problem is that while the total number of unemployed continues to decline, many of the people who lost their jobs once COVID broke out in March aren't getting them back. This was starkly shown with September's increase of nearly 800,000 people that have been unemployed for more tha 26 weeks, which followed a big increase of people with 15 or more weeks of unemployment a couple of months ago.

That gives a better indication of the gap we still have in the labor market, and if even a fraction of the 4.5 million labor force dropouts come back in the coming months, it’ll take a lot more effort to have the unemployment rate keep going down vs the last 5 months. Which tells me that the 7.9% unemployment rate is close to what we need to assume as the economy's baseline in Q4 2020.

On the payrolls side, I originally thought this was going to be a very disappointing report, given the topline of 661,000 new jobs when over 800,000 was predicted. But then I noticed the revisions, and it wasn’t so bad.
The change in total nonfarm payroll employment for July was revised up by 27,000, from +1,734,000 to +1,761,000, and the change for August was revised up by 118,000, from +1,371,000 to +1,489,000. With these revisions, employment in July and August combined was 145,000 more than previously reported. (Monthly revisions result from additional reports received from businesses and government agencies since the last published estimates and from the recalculation of seasonal factors.)
Put that 145,000 in revisions on top of the 661,000 new jobs, and that’s just over 800,000. Conversely, it also means that September’s job growth was cut by more than 55%, which is an ominous sign going forward.

This is especially true when you realize that we are still 10.7 million total jobs below our peak in February, and 9.8 million in the private sector. Which means we have barely gained back half the jobs that were lost in March and April.
And some of the alleged growth that we had in September wasn't necessarily because there were more jobs in some sectors. For example, “gains” in a number of travel-related industries and food services are likely a reflection of the prior layoffs, which meant that the usual end-of-Summer layoffs in September didn’t happen in 2020. Because they had already happened.

But the Bureau of Labor Statistics was still counting on those losses, and they baked that into their seasonal adjustment for this jobs report.

Seasonal adjustment, September 2020

Food Services +159,800

Amusement, Gambling and Rec +150,300

Lodging/Accommodations +102,800

What this means is that even if there wasn’t one job added in the real world in these sectors in September, the jobs report would show a seasonally-adjusted “gain” in these sectors. That shows clearly when you compare the raw, non-seasonally adjusted numbers with the official, seasonally adjusted ones.

Even after you account for the cosmetic boost given to this sectors in September, they are still well below the number of jobs they had before COVID-19 struck, as is the retail sector.
There was one area that was the inverse situation - having fewer jobs added than normal for September, meaning a big loss in seasonally adjusted jobs - and that was in education. This was true both in private and public education.

Job change (seasonally adjusted), Sept 2020

Private educational services -68,500

State govt education -49,400

Local govt education -231,100

Some of this seems to be calendar-related, as August had some seasonally adjusted gains. But if you put together August and September numbers in those 3 educational sectors, the net loss is still 121,000.

Those stats seem to be a good metaphor for the US jobs market in general. Some of the COVID 19-related crater in the economy has been filled during the warm-weather months, but we are still well below where we were, and now we are seeing headwinds form that could keep us from climbing much further.

Expanded unemployment benefits are pretty much gone, and the PPP program has now expired - items which artificially increased demand and kept people on payrolls. And with COVID continuing to hit hard in many places (especially in Wisconsin...and the White House!), it will encourage people to continue to socially distance and not drive business to sectors that have already suffered heavy losses. Many business owners are barely hanging on as it is, and another couple of months of losses could be all it takes to have a second wave of major losses.

Then take away the hundreds of millions in election-related spending after October, and there's not much to power us through. Instead, it seems more likely that things will fade from an already suboptimal situation in the jobs market, and the jump in long-term unemployment is a bad harbinger for what seems like a gloomy 2021 outlook.

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