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Slowing Payroll Gains Increase Concern About Recovery – Robert Hughes (12/08/2020)

U.S. nonfarm payrolls added 245,000 jobs in November, the seventh monthly gain since posting massive drops in March and April. However, the latest gain is the slowest so far in the recovery, and the seven-month total gain of 12.33 million is far from offsetting the 22.16 million loss in March and April (see first chart).

Private payrolls added 344,000 jobs in November, which brings the seven-month total gain to 12.67 million versus a loss of 21.19 million in March and April. Total payrolls remain 9.8 million below the February peak while private payrolls remain 8.5 million below the February peak (see first chart).

The report suggests that the labor market recovery is continuing. However, the slowing pace of gain and large gaps to full recovery, especially in light of surging new cases of Covid-19 and new government restrictions being implemented around the country, are raising doubts about the strength and durability of the recovery.

Within the 344,000 gain in private payrolls, private services added 289,000 while goods-producing industries gained 55,000. For private service-producing industries, the gains were led by a 145,000 increase in transportation and warehousing, followed by a 60,000 gain in professional and business services, health care and social-assistance industries (also with a 60,000 increase) and a 31,000 increase in leisure and hospitality. Retail lost 35,000 jobs.

Within the 55,000 gain in goods-producing industries, construction added 27,000 jobs, durable-goods manufacturing increased by 22,000, nondurable-goods manufacturing rose by 5,000, and mining and logging industries added 1,000 jobs. Despite the gains over the last seven months, every industry group had fewer employees in November than in February. The net losses range from about 7,400 in utilities workers to a devastating 3.4 million in leisure and hospitality (see second chart).

The government sector cut 99,000 employees in November, with local government payrolls dropping by 13,000, state government payrolls unchanged, and the federal government cutting 86,000 workers. Average hourly earnings rose 0.3 percent in November, putting the 12-month gain at 4.4 percent. Combining payrolls with hourly earnings and hours worked, the index of aggregate weekly payrolls rose 0.5 percent in November following a 0.8 percent gain in October. The index is still down 0.7 percent from a year ago.

The total number of officially unemployed fell to 10.74 million in November, a drop of 326,000 from October. The number of officially unemployed in February was just 5.8 million.

The unemployment rate fell to 6.7 percent from 6.9 percent in October while the underemployed rate, referred to as the U-6 rate, fell from 12.1 percent in October to 12.0 in November; the peak was 22.8 percent in April (see top of third chart).

The participation rate fell to 61.5 percent from 61.7 percent. The participation rate was 63.4 percent in January 2020 and fell to a low of 60.2 in April during the lockdowns. The employment-to-population ratio, one of AIER’s Roughly Coincident indicators came in at 57.3 for November, above the 51.3 ratio in April but still well below the 61.2 ratio from January 2020 (see bottom of third chart)

The November jobs report shows that the labor market continues to recover from the massive declines in March and April. However, the slowing pace of gain and large gaps to full recovery, especially in light of surging new cases of Covid-19 and new government restrictions being implemented around the country, are raising doubts about the strength and durability of the recovery.  Furthermore, the longer businesses are closed or restricted and the longer the labor market remains weak, the more likely that financial strains such as debt delinquencies, debt defaults, and bankruptcies will hamper economic recovery.

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