September 4, 2020

Executive Summary: US employers added 1.4 million jobs in August, while the unemployment rate fell almost two percentage points to 8.4%. US firms have quickly recovered 48% of the 22.2 million jobs lost in March and April. We maintain our view that a self-reinforcing upswing is underway, but the repair process is transitioning as the size of the gains will likely moderate after the huge initial snapback. While the worst is behind us, the biggest monthly gains are likely in the past as well.

Longer-Term Trend

US nonfarm payrolls rose by 1.37 million in August, just ahead of the consensus estimate of 1.35 million and beating expectations for the fifth straight month. However, revisions to the prior months shaved off 39,000 workers from the previously reported totals. The June tally was revised down by 10,000, to 4,781,000 from 4,791,000, while the July figure lowered by 29,000, to 1,734,000 from 1,763,000.
About 10.6 million, or 48%, of the 22.2 million jobs lost in March and April have been regained over the past four months. However, the number of persons categorized as “on temporary layoff” fell dramatically to 6.2 million in August, down from 18.1 million in April. With each passing month, the likelihood increases that the bulk of these jobs will become permanently lost.

Labor Force and Unemployment

The unemployment rate declined by 1.8 percentage points to 8.4% in August from 10.2% in July and has fallen an astonishing 6.3 percentage points from the peak of 14.7% in April. The all-in unemployment rate (U-6) also fell, down 2.3 percentage points to 14.2% in August. The labor force increased by 968,000 workers, as the total workforce rose to 160.8 million. The labor force participation rate ticked higher to 61.7% in August, though remains below the 63.4% rate in February.

Industry Trends

Service-providing industries added 984,000 workers, while goods producers added just 43,000 workers. Mining & logging was the lone segment to shed jobs during the month, which it had been doing before the pandemic, having lost workers in 7 of the prior 12 months. However, there were some notable shifts. The two biggest were within the leisure & hospitality and government segments, the latter of which accounted for a quarter of the August job gains.

We are concerned about the leisure & hospitality segment, which took the brunt of the job losses during the pandemic. The segment has recovered half of the 8.3 million workers lost since February (see chart below). Restaurants and bars, though still down 2.5 million since February (a large number of workers), are roughly 20% below pre-pandemic levels. But the hotels and accommodations sub-industry is down 40% over that span, which is the result of dramatically reduced business travel.

Reduced travel is obviously impacting airlines, which are categorized within transportation & warehousing. Although it is a relatively small industry (less than 500,000 workers pre-pandemic), the passengers that airlines ferry generate a lot of spending on hotels, restaurants, and rental cars (or rideshare and taxis). Unfortunately, several of the largest airlines have announced that they expect to transition tens of thousands of furloughed workers to permanent job losses in the next few months.

The government segment added 344,000 workers on the federal and local levels; states clipped 2,000 workers. Of the 251,000 workers added by the federal government, 238,000, or 95%, were temporary 2020 Census workers.

As the chart shows, just 4 of the 14 major industry segments are cumulatively down greater than 750,000 workers for the March to August period.

Our Take: Labor Outlook Update

As this report highlights, the recovery is uneven, especially by industry. The leisure & hospitality segment is a perfect illustration: some industries have largely recovered—such as RV parks and campgrounds, which are only down 15%—while others remain greatly impacted, as hotels are 40% below prior levels. Others, such as restaurants that are down about 20%, are somewhere in between.

The overall prospects are mixed. The Paycheck Protection Program (PPP) within the CARES Act, along with Small Business Administration loans and other support programs, have certainly helped many businesses get through the pandemic period.

Conversely, more layoffs loom, including the aforementioned airlines cuts. Moreover, there is a modest undercurrent of continued job losses due to bankruptcies and corporate restructurings. These have broader ramifications than just those directly involved with COVID-19 shutdowns and will not be easily repaired. Indeed, government support programs like the PPP have helped blunt some of the downside. Nevertheless, like most recoveries, the repair process will be measured in quarters and years, especially on the employment front.

Yet, there has been a flurry of activity during July and August in several segments, particularly automotive-related production and residential housing. Companies in both of these industries are scrambling to make up for the lost production time. Within manufacturing, most activity-based gauges have quickly spiked to multi-year highs as production comes back online. In many cases, factories are working overtime to make up for the 2.5 months of lost production, especially in automotive related industries, including parts, components and tires.

Bottom Line

A fifth month of strong job gains is encouraging. We are cautiously optimistic as the employment repair process continues to transition and the size of the gains moderate after that huge initial snapback. Indeed, the pace of reopening will be hindered by inevitable infection spikes and reopening setbacks.
We maintain our view that a self-reinforcing upswing is underway, but believe that the size of the monthly gains will moderate. We continue to expect positive-but-uneven job gains in the coming months.

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