November 04, 2020
There have been some anomalies in the data that are worth tracking.
With the period of rapid recovery from the shutdowns behind us, the labor market is likely looking at a long slog to get back to something resembling full employment. It clearly has lost considerable momentum now that the bulk of the CARES Act money has been spent. Furthermore, the economy will face serious headwinds, as the unchecked spread of the pandemic will lead to more measures curtailing business operations. It will also discourage people from visiting restaurants and using other services, even where there are no legal restrictions.
Job Growth Across Industries
The most immediate way to see how these effects are playing out is to see the mix of job growth across industries. Construction and manufacturing are likely to show healthy job growth. Residential construction is seeing a real boom due to low interest rates and the decision by many people to move out of major urban areas due to increased opportunities for remote work.
The surge in construction and home buying is also leading to high demand for many types of durable goods. People who have kept their jobs through the pandemic have money in the bank, and many are looking to make major purchases.
The picture with services, most obviously hotels and restaurants, looks very different. They are still far from having recovered the ground loss with the onset of the pandemic. It is entirely possible that we could see further job loss in these areas in response to the pandemic’s resurgence.
We are also likely to see further job loss in the state and local government sectors. These sectors have already been hard hit, but with these governments facing massive budget shortfalls, many will have little choice but to have more layoffs unless they get additional money from Washington.
Wages
It will be interesting to see the path of wage growth as we close out 2020 and get into 2021. In the shutdown period and the period of rapid recovery, wage growth was being driven by changes in composition, as tens of millions of workers lost their jobs and then many of them regained them.
With job growth at a more normal level, the change in wages now is primarily reflecting the actual change in hourly wages for the people working. Last month, the average hourly wage rose by less than 0.1 percent. In construction, it was flat, and in manufacturing, it actually fell by 0.3 percent. Monthly wage data are highly erratic, especially when looking at the industry-level rather than economy-wide, but we should be looking for evidence that the weak labor market is slowing wage growth from its pre-pandemic pace of just over 3.0 percent.
Disadvantaged Groups Hit Hardest
Recessions always hit the most disadvantaged segments of the labor force hardest, but it appears to be even more true in this recession. Ordinarily, manufacturing and construction are the hardest hit sectors. Both have come through the downturn in relatively good shape. Instead, sectors that are lower-paying and disproportionately employ women are feeling the brunt of the downturn.
This shows up clearly in the sharper fall in employment rates for women than men since the pandemic hit in February, 5.0 percent compared to 4.6 percent. This gap may increase in October, as manufacturing and construction add jobs, and hotels and restaurants see small gains or even losses. This difference also shows up in the drop of voluntary part-time employment. The number of people working part-time by choice is down by almost 3.3 million (14.9 percent) since February. These are primarily women who don’t want to work at full-time jobs because of caregiving responsibilities.
Long-Term Unemployment
Another important issue is the growth in long-term unemployment. Economists have usually considered six-months as an important cutoff between short-term unemployment and long-term unemployment. Workers who are unemployed for more than six months have much greater difficulty getting re-employed. As the impact of the pandemic persists, we have many more workers falling into this category. Last month the number of long-term unemployed rose by 780,000 to 2.4 million. It is virtually certain to rise further in October. It will also be important to see the extent to which long-term unemployment is leading more prime age (ages 25 to 54) workers to drop out of the labor force.
Pandemic-Related Data Anomalies
There have been some anomalies in the data that are worth tracking. There were notable rises in the share of the unemployed who had voluntarily quit their jobs. This is something we usually see in a strong labor market. In a weak labor market, workers are typically reluctant to leave a job unless they have a new job arranged. It will be interesting to see if this trend continues in the October report. One factor is that workers may feel the need to leave a job out of safety concerns due to the pandemic.
Another anomaly is that we have seen unusually high unemployment rates for Asian Americans. Typically, their unemployment rates have been slightly lower than the rates for whites. However, the unemployment rate for Asian Americans in September was 8.9 percent, compared to 7.0 percent for whites. This may be due to the fact that many Asian Americans run restaurants and other small businesses that have been hard-hit by the pandemic. In any case, it is a pattern worth noting.
The big issue this report will tell us is whether we can feel confident, based on the October data, that this is an economy on the road to recovery or is it running out of steam and in need of a new boost from Washington.
The monthly Employment Situation is scheduled for release by the Bureau of Labor Statistics on Friday, November 6 at 8:30 AM Eastern Time. CEPR produces same-day analyses of government data on inflation, employment, GDP and other topics.
Follow @DeanBaker13 on Twitter to get his quick-take analysis of government data immediately upon release.
