Payroll employment rose by 1.4 million in August, a moderate slowdown from the downwardly revised 1.7 million in July. Temporary hires for the 2020 Census jumped 238,000, which helped push up government hires at the fastest pace since the 2010 Census. Hiring for the census was delayed due to COVID-19; there are concerns that the census will not be completed by September. Commerce Secretary Wilbur Ross is pushing for an early conclusion to the data gathering, despite reported complaints of undercounting; Black and Hispanic households in urban areas are the most vulnerable. The data impact everything from the allocation of federal funds to how economic data is calculated going forward.
State and local government hires rose for the second month in a row. Gains were concentrated among local hires with gains outside of education dominating the increases. Total government employment remains 831,000 below the February peak, despite temporary Census hires. Losses in state and local government employment more than account for the weakness, which will worsen if Congress fails to come up with another aid package. Every state in the country suffered a severe blow to revenues when COVID-19 hit.
Private sector job gains rose by a little more than a million in August, more than 30% behind the pace of July. That means we have regained a little more than half of the 21.2 million private sector jobs lost in March in April, but still have more than 10 million to go. That is still well above the 8.8 million private sector jobs lost during the Great Recession in 2008-09.
Retail drove the overall gains with an increase of 249,000 jobs. Gains were broad-based as more stores and malls reopened. Employment in the retail sector remains 655,000 below February levels; retail hiring peaked in January of 2017. COVID-19 has accelerated the shift from in-store to online shopping. Many traditional retailers, even in general merchandise, are shoring up their online presence.
Professional services added 197,000 jobs during the month, more than half in temporary help services.That marks a sharp reversal from the trends we saw prior to the crisis when firms were shifting to more permanent hires; temp jobs are easier to cut when the economy falters.
Leisure and hospitality added 174,000, mostly in food services. That marks a sharp slowdown from recent months; we are hitting a limit on how many workers the sector can support without a vaccine to allow larger gatherings. Employment in leisure and hospitality is still a staggering 4.1 million below the peak in February. Worse yet, food services remain among the most vulnerable to another round of layoffs in the fall when outdoor dining and drinking will no longer be options for much of the country.
Health care employment continued to recover as physician and dental offices caught up their backlogs of appointments that were postponed during lockdowns. Elective surgeries were also backlogged, which is now helping employment in hospitals. The weak spot remains hiring at nursing homes and residential care facilities, where COVID-19 deaths have been highest. People have begun moving their loved ones back home to avoid the risks of contagion at long-term care facilities. Health care employment is still 1.2 million below the peak we saw in February. One irony of the COVID-19 crisis is the impact it has had in cutting health care jobs.
Average hourly earnings increased 0.4% in August compared to July and rose 4.7% from a year ago. Year-over-year gains are distorted by the fact that low-wage workers were hit harder by COVID-19 than high-wage workers. More granular data for the month of July show that wage gains for the low- to middle-wage workers have held up better than wage gains for high-wage workers, a trend we saw prior to the crisis. Pay supplements for low-wage, essential workers contributed to their gains.
The household survey showed a much larger-than-expected drop in the unemployment rate to 8.4% in August from 10.2% in July. The number of permanent job losers went up, while temporary job losses fell. The reality that some jobs will not come back until we can fully reopen with a vaccine is starting to set in. The overall size of the labor force is 3.7 million below what it was in February. If those workers were included in the labor force today, the unemployment rate would still be well above 10%. The ranks of workers who were misclassified as absent instead of unemployed due to COVID-19 continued to drop. The Bureau of Labor Statistics has worked with the Census Bureau, which conducts the survey, to minimize the misclassification problems they have had since the onset of the crisis in March.
The labor force participation rate increased but remained below the highs before the crisis. The improvement in participation was driven by sharp increases in the participation rate of white and Hispanic men. Participation by white and Hispanic teens also increased sharply on a seasonally adjusted basis. Fewer teens than usual dropped out of the labor force to go to school as many schools stayed online. Some of that may reflect the need to supplement household income, especially in light of the lapse in unemployment benefits and the hurdles to women returning to work. The participation rate for women remained below pre-COVID levels.
Special questions in the household survey revealed more fragilities. Some 24.2 million workers could not work because their employer closed or lost business due to the pandemic. Some 11.6% of those workers were paid but did not actually work; those figures were heavily concentrated among workers who have higher levels of education and are at risk for layoffs as the pandemic persists. This is in addition to the pending layoffs related to the Payroll Protection Plan (PPP) loans, most of which were depleted by the end of August and could show up as job losses in September.
Job gains were good but not enough to lift us out of the hole created by COVID-19, while the headwinds to further improvements are picking up. Food service and retail workers are at risk of another round of layoffs in the fourth quarter when firms and individuals pull back on holiday celebrations. High-wage layoffs are expected to pick up. The challenge will be to keep employment from stumbling again in the fourth quarter. COVID-19 will leave deep scars on the labor market if Congress does not do more to alleviate the near-term pain associated with the crisis.
Copyright © 2020 Diane Swonk – All rights reserved. The information provided herein is believed to be obtained from sources deemed to be accurate, timely and reliable. However, no assurance is given in that respect. The reader should not rely on this information in making economic, financial, investment or any other decisions. This communication does not constitute an offer or solicitation, or solicitation of any offer to buy or sell any security, investment or other product. Likewise, this communication serves to provide certain opinions on current market conditions, economic policy or trends and is not a recommendation to engage in, or refrain from engaging, in a particular course of action.