U.S. Economy Continues Moderate Recovery

Heading into the fourth quarter, the U.S. labor market continues its moderate pace of recovery from the economic effect of the COVID-19 pandemic.

A total of 638,000 jobs were added to payrolls in October according to the Bureau of Labor Statistics (BLS), a pace slightly above what many economists expected. Private sector gains far outpaced the overall number with a monthly gain of 906,000 jobs, but the release of temporary Census workers, coupled with local and state-level education retrenchment, brought the total monthly figure lower.

Increasing rates of COVID infections around the country have tempered short-term outlooks for a “V-shaped” recovery, as recently announced layoffs and furloughs at several major employers will hinder the employment outlook in the next few months. Additionally, the expiration of federal relief programs will place added burdens on the most severely affected until new legislation can be agreed upon. October’s job gain was 34,000 jobs fewer than the revised September figure, but still about three times the normal monthly average job gain in the pre-pandemic economy. Since May, more than 12 million jobs have been recovered, with about 10 million left to recover before reaching February’s employment level.

The U3 or “headline” unemployment rate fell to 6.9% in October, a decline of 100 basis points (bps) from 7.9% in September. October’s rate is comparable to the unemployment rate from the end of 2013, when the nation was slowly working its way out of the Great Recession. The latest unemployment reading is less than half the rate of 14.7% seen in the worst moment of the pandemic from just six months ago. The four-week moving average of initial claims remains stubbornly high at 787,000 for the week-ending October 31 and the total number claiming benefits exceeds 21 million.

In other October BLS data, annual hourly earnings growth for all employees was 4.5%, slightly below September’s revised annual increase and 130 bps higher than the rate from October 2019. The monthly wage figure increased $0.04 between September and October, and was up $1.26 from October 2019, to $29.50. The average monthly increase since July was $0.05 compared to an average of $0.07 over the same four months one year ago and $.08 the year before. Wage pressure has lessened during the pandemic recovery as more lower-paying jobs return to the economy.

The civilian labor force (CLF) participation rate rose 30 bps to 61.7% in October but is down 160 bps from October 2019. The participation rate has averaged about 61.5% since June and has not strayed more than 30 bps plus or minus, after averaging close to 63% in 2019. The labor force itself was up by 724,000 from September, almost equaling the monthly decline in the labor force in September. The employment-population ratio increased 80 bps from September’s rate to 57.4% in October and is up 610 bps from the nadir in April. The total number of unemployed (11.06 million) is about 1.5 million less than September, as the number of employed workers increased by 2.2 million (in the household survey). The number of people not in the labor force who currently want a job has decreased by 539,000 from September to 6.7 million currently.

The number of unemployed workers on temporary layoff continues to fall, from 4.6 million in September to about 3.2 million in October, but the number of permanent job losers has about tripled from the level in October 2019, to more than 3.6 million. Workers that left jobs to look for another opportunity declined slightly from September, perhaps as an indication of increasing concern for the short-term outlook. The number of employed part-time workers for economic reasons increased from 6.3 million in September to 6.7 million in October, and the number of part-time workers for noneconomic reasons (in other words, they usually work part-time) increased from 18.9 million to 19.4 million in October.

The U6 unemployment rate, which includes part-timers for economic reasons and marginally attached workers, fell from 12.8% in September to 12.1% in October, less than the decrease in the U3 rate. Persons marginally attached to the labor force shot up by 694,000 from October 2019 to 1.9 million. Persons marginally attached to the labor force are those who currently are neither working nor looking for work but indicate they want and are available for a job and have looked for work sometime in the past 12 months.

The number of unemployed for less than five weeks was virtually unchanged from September at about 2.5 million. Additionally, the 5 to 14 weeks and 15 to 26 weeks categories saw a decrease of 457,000 to 2.3 million, respectively. However, the longer-term category of unemployed workers (out of work for 27 weeks or more) increased from 2.4 to 3.6 million workers.

Industry Focus

Those industries most effected by the pandemic continue to make up lost ground as the economy slowly recovers. Led by gains in temporary help services, retail and food services, several industry subsectors also experienced solid employment gains in October. However, the Government sector continued to lose jobs, primarily in local and state education, in addition to the release of temporary Census workers in October.

• The Leisure and Hospitality industry regained 271,000 jobs in October, with almost 84% of them in food services and accommodation. Modest reopenings of performing arts and spectator sports venues accounted for almost 24,000 jobs gained in that subsector and 16,700 jobs were added in amusements, gambling, and recreation.

• More than half of the Professional and Business Services industry’s gains in October of 208,000 jobs were in the lower-paying temporary help services sector (+108,700) as employers seem to be hedging their hiring decisions for now. The only other subsectors with significant gains were the services to buildings and dwellings (+19,000), computer systems design (+15,800), and management and technical consulting services (+14,500) categories.

• Retail trade again garnered the largest share of the Trade, Transportation, and Utilities industry gain of 172,000 jobs in October. The electronics and appliance stores, motor vehicles and parts, and furniture and home furnishings stores subsectors each added more than 13,000 jobs for the month. Transportation and warehousing contributed 63,200 jobs to the monthly total, while wholesale trade added just 6,400 jobs in October, primarily in the nondurable goods subsector.

• The Construction industry gained an impressive 84,000 jobs in October, spread throughout its various subsectors, both residential and nonresidential. Specialty trade contractor employment grew by 45,300, with a larger share in nonresidential contractors (+27,500). The construction of buildings sector added 19,400 jobs, also with a larger share in nonresidential (+13,400), while heavy and civil engineering construction added 18,800 jobs in October.

• The Education and Health Services industry gained 57,000 jobs in October but gains in the health care and social assistance sector of 79,000 were offset by a loss of 21,500 jobs in educational services. Increased online learning and limited school reopenings has reduced the need for secondary and support positions at many schools. The nursing and residential care facilities subsector was the only other group that lost jobs in the industry in October (-8,600).

• The Other Services sector had a gain of 47,000 jobs in October, with the largest share of it in the personal and laundry services (+27,100) subsector. Repair and maintenance added 17,900 jobs for the month.

• Job gains in the Manufacturing industry slowed in October with 38,000 positions filled in the month. Durable goods manufacturing accounted for the bulk of monthly gains (+21,000), led by the fabricated metal products (+7,200) and primary metals (+6,000) subsectors. Nondurable goods manufacturing (+17,000) was led by food manufacturing (+6,200) and plastics and rubber products (+3,500).

• The Financial Activities industry (+31,000) spread monthly gains almost evenly between the finance and insurance (+16,800) and real estate and rental and leasing services (+14,500) sectors.

• The Mining and Logging industry posted a monthly gain of 1,000 jobs. The small subsector of coal mining continued to lose jobs with a loss of 1,100 in October.

• The Information industry lost a net 3,000 jobs in October, with losses in telecommunications (-5,800) and the motion picture and sound recording (-2,400) subsectors offsetting gains in broadcasting (+2,700) and publishing (+2,500).

• As previously mentioned, the Government sector was the largest industry drag on the economy for the month of October. Losses were largely due to the release of temporary Census workers (-138,800), as well as local (-97,800) and state (-61,400) government education.