December 6, 2020
Executive Summary: The US added 245,000 jobs in November, which was undermined by the wind down of the 2020 Census. Meanwhile, the unemployment rate ticked lower to 6.7%. We maintain our view that a self-reinforcing upswing is underway. We are heartened by the tremendous amount of momentum already rolling within the US economy, which should propel the recovery. In the near term, the size of the monthly jobs gains will appear somewhat sluggish month-to-month, reflecting the unevenness of the overall recovery and localized restrictions.

Longer-Term Trend

US nonfarm payrolls increased by 245,000 in November, missing the consensus estimate of 460,000. Similar to October, stronger private payroll gains were offset by losses within government.

Revisions to the prior months added 11,000 more workers to the previously reported totals. The September figure was revised up by 39,000, to 711,000 from 672,000, while the October tally was revised down by 28,000—to 610,000 from 638,000.

However, the number of people categorized as “on temporary layoff” fell by 441,000 to 2.8 million, down from the peak of 18.1 million in April. We expect that most of these jobs will be permanently lost within the next few months.

Labor Force and Unemployment

The unemployment rate declined modestly to 6.7% from 6.9% in October, but well below the April peak of 14.7%. The all-in unemployment rate (U-6) edged lower to 12.0% from 12.1%. The labor force continued to fluctuate, losing 400,000 workers in November, pushing the total workforce down to 160.5 million. The labor force participation rate fell by 0.2 percentage point to 61.5%.

Industry Trends

Service-providing industries added 289,000 workers, while goods producers hired 55,000 workers. Two segments, government and retail trade, shed jobs during the month.

The government segment lost 99,000 workers. Once again, the bulk of the losses (93,000) were temporary Census 2020 workers. Aside from those, the federal government hired 7,000 workers. Local educational positions slashed another 21,000 positions.

Online shopping has had an outsized impact on the labor market in recent months. Retailers, who should have staffed up for the all-important holiday shopping season, cut nearly 35,000 workers in November. Meanwhile, transportation & warehousing added 145,000 positions in November, the industry’s largest monthly jobs gain in 23 years. Truck transportation chipped in 13,000 jobs. Moreover, couriers & messengers hired 82,000 during November, while warehousing & storage added 37,000. Together, payrolls for these sub-industries have increased by 279,000 since February. Although the pandemic certainly contributed to the increase, online shopping has accelerated markedly, which is unlikely to abate after the pandemic.

The leisure & hospitality segment added 31,000 workers in November. Arts, entertainment, and recreation added 43,000 in November, but food service and drinking places cut 17,000. Leisure and hospitality has been the hardest hit segment with 3.45 million fewer workers than in February.

Our Take: Labor and Overall Outlook Update

Obviously, the pandemic path is impacting the labor trend. There are two near-term issues in our view.

First, a growing number of states and cities have renewed restrictions to help halt the recent surge in cases and hospitalizations, primarily targeting restaurants, bars and gatherings. Please see our weekly Truist COVID-19 Economic Data Tracker for a more in-depth discussion of the pandemic’s impact on economic data.

Many of those localized COVID-restrictions, though, began to occur after the Bureau of Labor Statistics’ November survey. Accordingly, we anticipate that the December payrolls will be pinched by the restrictions, much of which will be concentrated in leisure & hospitality.

Secondly, the labor force is shifting and shrinking. While there are 9.8 million fewer jobs compared to pre-pandemic levels, about 5.7 million workers have dropped out of the labor force. Two-thirds, or about 3.9 million, of the people not in the labor force in November stated that the pandemic prevented them from looking for work. Some are likely parents caring for children that are now at home. Others may be discouraged by conditions or the pay-health risk tradeoff, i.e., not willing to work for prevailing wages within a pandemic due to their pre-existing health situation. Ultimately, some of these people may never return to the workforce.

These two factors—localized COVID-restrictions and the shrinking labor force—underscore the need for further COVID relief through government support programs targeting these groups. On the margin, not getting another round of government support is a negative from an economic standpoint, but it’s not fatal for the US economy. Moreover, the undercurrent of job losses due to COVID restrictions impacts the overall pace of the recovery.

We are hopeful that additional COVID relief (fiscal support) is in the offing, as both sides appear to be edging closer towards an agreement in the coming months, if not sooner. Yet, given the ongoing delay and the lag time needed for its impact to emerge, we do not anticipate much lift from further COVID relief in the next few months. Even if a COVID relief bill passed immediately, it likely would not improve payrolls and other economic data until February.

Looking ahead, we are encouraged by the prospect of vaccines in 2021. More importantly, we are heartened by the tremendous amount of momentum already rolling within the US economy from manufacturing, freight and logistics to housing, health care and technology. Many of the industry gauges indicate not just recovery but outright growth ahead. Moreover, most consumers and businesses appear to be in better financial condition, as evident by a roughly $2.5 trillion increase in bank deposits over the course of 2020. Accordingly, the US economy is poised to recover stronger once we get to the other side of the pandemic.

Nevertheless, like most recoveries, the repair process will be measured in quarters and years, especially on the employment front. We believe the US remains in the early innings of this process and are encouraged by the progress made over the past seven months.

Bottom Line

We maintain our view that a self-reinforcing upswing is underway. Yet, the size of the monthly jobs gains have predictably moderated after the huge initial snapback in May and June. We anticipate that the size of the monthly job gains will appear somewhat sluggish for the next few months, reflecting the unevenness of the overall recovery as well as localized restrictions. Given the lag time between fiscal relief measures and the arrival of their ultimate effects, we do not anticipate much lift from further COVID relief, which would take a few months to materialize.

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