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Labor Market Recovery Continued in June but Surging COVID-19 Cases Raises Uncertainty – Robert Hughes (07/07/2020)

U.S. nonfarm payrolls posted a second monthly gain in June, adding 4.8 million jobs following a 2.7 million rise in May, but remain well below prior peaks (see top of first chart). As has been the case over the last few months, there were a number of technical issues with the June report including unusually low response rates and improper coding of some classifications (though improper coding is becoming less significant). Nevertheless, the report suggests that the labor market is recovering as restrictive government policies are lifted. However, with the number of new COVID-19 cases surging in many states, uncertainty as to consumer reactions and behavior as well as the continued lifting or possible reinstatement of lockdown policies is increasing, threatening the recovery.

The total number of officially unemployed fell to 17.8 million in June, a drop of 3.2 million from May. The number of officially unemployed in February was just 5.8 million (see bottom of first chart).

The unemployment rate eased down to 11.1 percent from 13.3 percent in May (see bottom of first chart) while the participation rate ticked up to 61.5 percent from 60.8 percent. Despite the improvement, the 11.1 percent rate is still higher than the two next highest cycle peaks, the 10.7 percent peak in November 1982 and the 10.0 percent peak in 2009. Though data collection was much less reliable, the unemployment rate following the Great Depression was estimated to have peaked at about 25 percent in 1933. The Bureau of Labor Statistics also noted that the technical issues with this report likely underestimated the unemployment rate by about 1 percentage point in June, meaning the actual rate was closer to 12 percent. The officially reported underemployed and unemployed rate, referred to as the U-6 rate, fell from 21.2 percent in May to 18.0 in June (see bottom of first chart).

Overall, private payrolls added 4.7 million jobs in June following a gain of 3.2 million in May (see first chart). Private services added 4.3 million while goods-producing industries gained 504,000. For private service-producing industries, the gains were led by a 2.1 million increase in leisure and hospitality followed by retail which added 740,000, and health care and social-assistance industries with a 475,000 increase. Within the 504,000 gain in good-producing industries, construction added 158,000 jobs, durable-goods manufacturing increased by 290,000, and nondurable-goods manufacturing rose by 66,000. Mining and logging industries lost 10,000 jobs (see second chart).

Average hourly earnings were down again in June, falling 1.2 percent for the month. The 12-month gain is 5.0 percent; however, these numbers are distorted due to the skewing of job losses towards lower paid workers. Combining payrolls with hourly earnings and hours worked, the index of aggregate weekly payrolls rose 2.5 percent in June following a 3.4 percent gain in May. The index is down 4.3 percent from a year ago.

The solid gain in the June jobs report is further evidence that the economy is already showing signs of recovery. Those early signs are supported and encouraged by the easing of restrictions placed on people and businesses around the country. However, as COVID-19 cases rise in many states, it is possible that consumers may be reluctant to return to pre-pandemic spending patterns. Furthermore, it is possible that policymakers decide to slow down the pace of easing restrictions or possibly reinstate some lockdown measures. Either development would likely slow the pace of economic recovery. The focus going forward will be to monitor the progression of the pandemic, consumer behavior, and policy response. Furthermore, identifying areas of the economy that are showing signs of recovery versus those that may be burdened with longer-lasting damage or facing new or accelerating pressures for structural change will be an important element in understanding medium-term economic growth.