Rehiring and Job Creation Slow in September

Payroll employment is expected to rise by 700,000 in September, half of the 1.4 million initially reported for the month of August. Private sector hires are expected to rise by 750,000, while government hires fall by 50,000.

Education is a particular risk at the state level as many state schools and universities were forced to move to hybrid or online classes to stem the spread of COVID on campuses. This, coupled with the loss in tax revenues triggered by the pandemic, could prompt another round of cuts to employment as we move into Fall. Last month, state and local employment was still down 1.1 million jobs from a February peak.

What’s at stake? Losses at the state and local levels were major reasons for the subpar rebound in employment from the Great Recession. It took more than six years to recoup the employment losses from that recession. We can’t afford a repeat, yet Congress remains gridlocked on providing additional aid before the election.

The leisure and hospitality sector should do better in September than August, largely because of previous layoffs. September is usually a time that resort destinations cut back on employment following Labor Day; there are fewer workers to cut this year, which could translate to a rise in employment after seasonal adjustment but should be read as relative “strength” in the moribund travel and leisure industry. Movie theaters also reopened over the month, but with smaller attendance than in pre-pandemic times.

Separately, hospitals continue to struggle despite a bounce-back in elective surgeries. They need government funding or will face much larger layoffs as we move into Fall and what could be another surge in COVID cases. New treatments have limited deaths and shortened, but not eliminated, the need for hospital stays.

Average hourly earnings are expected to remain unchanged in September after rebounding a bit in August. Earnings continue to reflect a disproportionate blow to low-wage workers. The result is that average hourly earnings, which are now more dominated by high-wage workers, appear to be growing much faster than they actually are.

We are also looking closely at the composition of employment gains. White workers are being rehired at twice the pace of Black workers. But, and this is important, this is not just a low-wage recession. The unemployment rate for college-educated workers was 5.4% in August. That’s one-half percent higher than the peak for college-educated workers (over 25 years old) hit during the Great Recession.

Separately, we expect the unemployment rate to drop to 8.0% in September from 8.4% in August. The participation rate is expected to hold steady at 61.7%. That is still well below the February level of 63.4%. Some 3.7 million workers left the labor force between February and August, the majority of them Black and Hispanic women who could not participate because their kids were home from school. The unemployment rate in August would have been closer to 10% if those workers were counted as still in the labor market.

The ranks of those who expect their layoffs to be temporary are shrinking, while those who fear their layoffs will become permanent are increasing. The jump in permanently unemployed suggests that the COVID recession is now metastasizing into a more traditional, longer recession. Scarring in the labor market appears to be compounding.

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