Employment Hits A Wall in July

The high frequency data on July employment is mixed. Job postings continued to rise but at a slower pace than we saw in May and June. Job postings did better in areas that did not see a surge in COVID cases in late June and early July and did worse in areas where infections flared. Vacationing remained elevated, with drives to state and national parks popular; their communities at times are overwhelmed with visitors. This likely helped to blunt the blow of some state reversals of reopenings in hot spots in the Sunbelt, which showed up as a deterioration in the job market as we entered July.

Both initial and continuing unemployment claims have picked up in recent weeks, which could show up as a decline in employment during August if the trend persists. Much of what is left of the current round of Payroll Protection Plan loans/grants will expire then. Many fiscal year budgets for state and local governments started on July 1 and will be cut dramatically as we move into the summer if the federal government doesn’t move to fund those programs aggressively.

The Census Bureau’s weekly Household Pulse Survey, measuring real-time shifts in the economy triggered by COVID, showed a loss of more than six million jobs between the employment survey week for June and the one for July. The problem is that data has only been gathered since April. We don’t know how much of the drop is seasonal - tied to education - and how much represents a major shift. The survey regained about two million jobs during the week following the survey week for the official employment data in July.

We are left with a wide band of uncertainty, with payroll employment expected to slow but not contract in July. Total payrolls are expected to rise by 750,000 in July, less than a fifth of the gain we saw in June. Private payrolls are expected to rise by 950,000, while cuts at the state and local levels shave 200,000 from the total.

Gains are expected to remain dominated by leisure and hospitality and health care, despite some state-based reversals on indoor dining and bars. Amusement parks started to reopen along with major league sports, which should buoy employment gains. Housing-related construction and the manufacturing sector are expected to add to payrolls, although the Institute for Supply Management (ISM) manufacturing survey for July showed a decline in hiring.

What was most striking about the ISM report, which showed another improvement in overall activity, including export orders, was how much firms were still struggling. The comments made by individual manufacturers were significantly more somber than the overall figures would suggest. This is one of my challenges in measuring an economy that is still growing at only a fraction of its capacity.

Losses are expected in retail and state and local governments. A slowdown in mall traffic, a jump in bankruptcies and store closings are expected to curb employment in the retail sector. Professional services are at risk of moderation, given how much of the industry is tied to small firms that service the commercial real estate sector, which is being hit hard by delayed rent payments.

Average hourly earnings are expected to fall another 0.3% in July but remain 4.2% above a year ago. The monthly drop reflects the outsized role that low-wage workers are playing in the composition of job gains as they are called back to work, notably in the leisure and hospitality sector. Year-over-year gains in wage growth remain distorted by higher wage workers who were able to work from home during the crisis but mask the degree to which high-wage workers were forced to accept temporary wage cuts or a cut in their hours worked.

Separately, the household survey in Friday’s report is expected to show that the unemployment rate edged down to 10.8% from 11.1% in June. That is still nearly a percent above the peak we saw during the worst of the Great Recession in 2008-09. Participation in the labor force is expected to move up a bit but remain well below the levels hit prior to the crisis. The Bureau of Labor Statistics has been working hard with Census workers to fix the classification problem of workers who are absent from work due to COVID-19. The share of the labor market that was misclassified as absent instead of unemployed because of that error in the questioning has fallen dramatically since the early days of the crisis.

The Household Pulse Surveys from Census note a rise in those who believe their unemployment is now permanent instead of temporary. More than a third of people who rent are also worried about their ability to pay rent in the months to come as enhanced unemployment benefits and the moratorium on evictions expired on July 31.

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