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Downside Risk Mount in November

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Our forecast for total nonfarm payroll employment shows an increase of 300,000 for November, the slowest pace since April when we were shedding jobs at a record pace. We expect to see gains in the private sector slow as public sector payrolls contract. A little more than 90,000 temporary 2020 Census workers were let go before the survey week for November, which ended on November 14. State and local governments are expected to shed 110,000 jobs in response to budget cuts due to COVID. The bulk of school closings did not occur until after the survey week; they will not show up as major disruptions until the December employment report.

Private sector payrolls could rise by 500,000 jobs in November, but risks are to the downside. Small businesses continued to shed workers during the month, while initial unemployment claims edged higher. Retail employment is expected to contract because hiring to fulfill online orders falls well short of the typical ramp-up in hiring for the holiday season. We would need to see more than 400,000 new hires in retail for November to keep retail jobs in the black for the month. The upside is travel over the Thanksgiving holiday, which likely provided a boost to hiring in the leisure and hospitality sector. Unseasonably mild November weather was another plus as it likely enhanced construction employment. Single-family home construction and remodeling remain on a tear.

Other concerns are jobs in health care, which could be limited by the surge in COVID-related hospitalizations. Hospitals in the Midwest were overwhelmed when cases surged in late October and early November. That likely put a damper on elective surgeries, which declined even before actual lockdowns in the spring. Nursing homes have also been shedding jobs since the onset of the crisis. Many people have moved their loved ones home to care for them, for fear of losing them in a nursing care facility. High-rise residential living facilities are also coming under stress.

Manufacturing activity is expected to continue to recover. Inventories remain tight especially for new vehicles, which should add to shifts during the holiday season.

Average hourly earnings are expected to rise by 0.2% in November. That will bring the year-on-year average down to a 4.3% gain. The composition of job gains, which has favored high-wage over low-wage workers, continues to artificially boost hourly earnings.

Separately, the unemployment rate is expected to hold at 6.9% in November. A slight pickup in participation in the labor market is expected to partially offset the downward pressure on the unemployment rate from additional job gains. The real hurdle for participation will occur when more schools opt to close in December in response to the surge in cases expected to hit post-Thanksgiving.


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