Home Economic Trends Covid Resurgence Hurts Recovery in Employment – Robert Hughes

Covid Resurgence Hurts Recovery in Employment – Robert Hughes

U.S. nonfarm payrolls added 235,000 jobs in August, the third slowest of the 16-month recovery. The gain follows the addition of 1.053 million in July and 962,000 in June. Still, the August gain is the eighth in a row and 15th in the last 16 months, bringing the eight-month gain to 4.687 million and the 16-month post-plunge recovery to 17.029 million. This is still well below the 22.362 million combined loss from March and April of 2020, leaving nonfarm payrolls 5.333 million below the February 2020 peak (see first chart).

Private payrolls posted a 243,000 gain in August after a 798,000 gain in July and 808,000 increase in June. The August rise in private payrolls is also the eighth in a row and 15th in the last 16 months. The August addition brings the eight-month gain to 4.098 million and the 16-month recovery to 16.810 million versus a combined loss of 21.353 million in March and April of 2020, leaving private payrolls 4.543 million below the February 2020 peak (see first chart).

Weakness in August was concentrated in the Retail industry and Leisure and Hospitality industry. Within the 243,000 gain in private payrolls, private services added 203,000 while goods-producing industries added 40,000 versus a monthly average of 585,500 over the prior six months for services and 36,667 for goods.

Within private service-producing industries, Retail lost 28,500 jobs in August, the third decline in the last five months while leisure and hospitality was unchanged for the month after adding 415,000 in July and an average of 349,833 per month over the prior six months. Among other service industries, business and professional services added 74,000 in August, transportation and warehousing gained 53,000, and education and health care services increased by 35,000 (see second chart).

Within the 40,000 gain in goods-producing industries, construction was down 3,000, while durable-goods manufacturing increased by 31,000, nondurable-goods manufacturing added 6,000, and mining and logging industries increased by 6,000 (see second chart).

After 16 months of recovery, only one of the major private industry groups has more employees than before the government lockdowns – transportation and warehousing. Two industries – Leisure and hospitality (down 917,000 jobs), education and health services (down 687,000) – are down more than half a million jobs each (see third chart).

On a percentage basis, the losses are more evenly distributed. Three of the 14 private industries shown in the report have declines of 5 percent or more since February 2020. Leisure and hospitality leads with a 10.0 percent drop since February 2020, mining and logging comes in second with a 6.7 percent loss followed by information services at 5.1 percent. For the labor market as a whole, total nonfarm payrolls and private payrolls are down 3.5 percent since February 2020 (see fourth chart).

Average hourly earnings rose 0.6 percent in August, putting the 12-month gain at 4.3 percent. The average hourly earnings data should be interpreted carefully, as the concentration of job losses and recovery for lower-paying jobs during the pandemic distorts the aggregate number.

The average workweek was unchanged at 34.7 hours in August. Combining payrolls with hourly earnings and hours worked, the index of aggregate weekly payrolls gained 0.8 percent in August. The index is up 9.7 percent from a year ago.

The total number of officially unemployed decreased by 318,000 in August to 8.384 million. The unemployment rate fell to 5.2 percent while the underemployed rate, referred to as the U-6 rate, fell to 8.8 percent in August. In February 2020, the unemployment rate was 3.5 percent while the underemployment rate was 7.0 percent (see top of fifth chart).

The participation rate was unchanged in August, coming in at 61.7 percent versus a participation rate of 63.3 percent in February 2020. The employment-to-population ratio, one of AIER’s Roughly Coincident indicators, came in at 58.5 for August, up from 58.4 in July but well below the 61.1 percent in February 2020 (see bottom of fifth chart).

The August jobs report posted a disappointing gain of 235,000 in August. Private payrolls were slightly better at 243,000 but both are well below the monthly average over the prior six months. Retail and leisure and hospitality were the primary reasons for the disappointment in August and both are likely a result of the resurgence of new Covid cases. Despite the eight consecutive monthly gains and 15 increases in the last 16 months, payroll employment remains well below peak measures from before the pandemic.

Rising Covid cases and falling consumer confidence are boosting the risks for the economic outlook. A consumer retrenchment would hinder the recovery though the damage will be far less than the carnage caused by widespread lockdowns.

Furthermore, ongoing materials shortages, logistical and transportation bottlenecks, and labor issues in the manufacturing sector continue to restrain the ability of supply to recover as quickly as demand, resulting in significant upward pressure on prices. Overall, the outlook is for continued recovery but the threats and headwinds to growth have increased substantially.