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Employment Gains Fail to Fill COVID Hole

RFP
Payroll employment rose by only 638,000 jobs in October, a little slower than the 672,000 revised gain we saw in September but better than expectations. That leaves us 10.1 million jobs in the hole compared to the peak in February and is still 15% worse than the losses experienced during the Great Recession of 2008-09. The public sector jobs dropped 268,000 jobs during October. The federal government shed some 147,000 temporary Census workers; state and local governments cut the remaining 121,000 jobs, all of them in education. State and local employment is now 1.3 million below the peak in February.

The loss of jobs at the state and local levels has been exacerbated by budget cuts triggered by COVID emergency spending and the inability to fully reopen schools and universities for fear of contagion. A shortfall in state and local employment gains was the primary reason for the subpar recovery in employment following the 2008-09 recession. That is why transfers to the states are so critical; budget cuts at the state and local levels pose an even greater threat to the recovery in jobs this time around.

Private sector employment rose by 906,000 jobs, close to the 892,000 we saw in September. Gains were driven by a 271,000 rise in employment in leisure and hospitality, a sharp slowdown from the pace in September. Food services accounted for the bulk of those gains and are among the most vulnerable to layoffs as COVID cases surge, temperatures drop and indoor dining becomes more risky. The low-hanging fruit of staff recalls in the leisure and hospitality sector has largely been picked.

Professional business services rose by 208,000, half of which was in temporary hires. That marks a sharp turnaround from the trends we saw precrisis, which favored more permanent over temporary hires. This reflects uncertainty about the pace of the recovery going forward. Gains were also strong in technical and management consulting, which is getting a boost from the shift to working from home, shoring up online services and defending against a surge in cyber attacks.

Retail employment increased by 104,000. More than half of those gains showed up at auto dealers and electronic and appliance stores, which reflects the shift in spending away from services to big-ticket durable goods.

Health care rose by 58,000, aided by rehiring at doctors and dental offices. Hiring at hospitals rebounded after contracting in September, Patients are trying to catch up on appointments missed and elective surgeries delayed earlier in the year. The worry is that hospitals are being once again overwhelmed by COVID cases, which could trigger another setback in hiring and revenues. COVID is much more costly for hospitals to treat than other illnesses. Employment in nursing and residential care facilities fell as people pulled their loved ones out of nursing homes and shunned moving into residential care facilities. These facilities were hardest hit by contagion and deaths due COVID.

Construction employment jumped by 84,000, The bulk of those gains were concentrated in the housing market and specialty trade sectors. The housing market is the only sector of the economy to fully recover from the losses due to COVID.

Average hourly earnings edged up slightly to $29.50. That is still up 4.5% from a year ago, but those averages are more reflective of the shift in the composition of jobs in the labor market. We lost more low-wage jobs, which biased up the read on hourly wages.

The unemployment rate plummeted a full percentage point to 6.9%. The participation rate rose to 61.7% in October, up 0.3% from September, but still down 1.7% from the February peak. Gains in participation were broad-based but women are still lagging by a substantial amount. This largely reflects the shift from in-person to online schooling. Women are being forced to quit the labor force at a much faster pace than men to care for and now educate children who are learning online from home. Improvements in the unemployment rate were also broad-based. The only exception was the total of those now considered more permanently unemployed. The unemployment rate for those workers held at 6%, up from a low of 4.6% in April.

The wounds in the labor market triggered by COVID continued to fester. The quality of job gains deteriorated. The ranks of those having to accept part-term instead of full-time employment for economic reasons swelled by 383,000 to 6.7 million in October. The ranks of the long-term unemployed - those unemployed for more than 27 weeks - increased by more than one million people in October. Workers who are unemployed for more than six months tend to get lower paying jobs once they are reemployed and suffer more mental and physical health problems than those who are only unemployed for a short period of time. The blow to family structure and the well-being of children is also significant. We are now nearly nine months into the pandemic.

Bottom Line
Job gains have moderated since the initial rebound late in the spring and early summer, while employment losses due to COVID remain substantial, even more than we experienced during the Great Recession. This is at the same time that headwinds to hiring by state and local governments are building and the wounds created by COVID in the labor market are festering. The Senate Majority Leader has signalled a willingness to cut a deal on an aid package during the lame duck session of Congress. The clock is ticking.

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