– September 4, 2020

U.S. nonfarm payrolls posted a fourth monthly gain in August, adding 1.4 million jobs following a 1.7 million rise in July, a 4.8 million surge in June, and a 2.7 million gain in May. However, the four-month total gain of 10.6 million is far from offsetting the 22.2 million loss in March and April; payrolls remain well below the February peak (see top of first chart).

The report suggests that the labor market recovery is continuing as restrictive government policies are lifted. However, the slowing pace of gain sustains concerns that a sizable portion of the losses may be very slow to return or may not return at all.

The total number of officially unemployed fell to 13.6 million in August, a drop of 2.8 million from 16.3 million in July and 9.5 million below the massive 23.1 million in April. The number of officially unemployed in February was just 5.8 million (see bottom of first chart).

The unemployment rate fell to 8.4 percent from 10.2 percent in July (see bottom of first chart) while the participation rate ticked up to 61.7 percent from 61.4 percent. The participation rate was at a cycle high 63.4 percent in January 2020 and fell to a low of 60.2 in April during the lockdowns.

The underemployed rate, referred to as the U-6 rate, fell from 16.5 percent in July to 14.2 in August; the peak was 22.8 percent in April (see bottom of first chart).

Private payrolls added 1.0 million jobs in August following a gain of 1.5 million in July (see first chart). Private services added 984,000 while goods-producing industries gained 43,000. For private service-producing industries, the gains were led by a 249,000 increase in retail followed by professional and business services which added 197,000, leisure and hospitality with a 174,000 gain, and health care and social-assistance industries with a 90,000 increase. Within the 43,000 gain in goods-producing industries, nondurable-goods manufacturing rose by 27,000, construction added 16,000 jobs, and durable-goods manufacturing increased by 2,000, while mining and logging industries lost 2,000 jobs. Despite the gains over the last four months, every industry had fewer employees in August than in February. The net losses range from a 1.3 percent drop in utilities workers to a devastating 25 percent plunge in leisure and hospitality (see second chart).

The government sector added 344,000 employees in August, however, most were related to hiring for the 2020 census.

Average hourly earnings rose 0.4 percent in August, putting the 12-month gain at 4.7 percent. Combining payrolls with hourly earnings and hours worked, the index of aggregate weekly payrolls rose 1.5 percent in August following a 1.1 percent gain in July. The index is still down 2.5 percent from a year ago.

The August jobs report suggests that as government restrictions are lifted, payrolls are likely to rise. However, without a credible understanding of Covid-19 and with a flood of incorrect and misleading information drowning society, consumers may be reluctant to return to pre-pandemic behaviors. In addition, with enduring restrictions and heightened uncertainty surrounding government policies, businesses may be reluctant to return to previous levels of employment and investment. The longer these conditions continue, the more likely businesses are to shrink or close permanently.

Robert Hughes

Bob Hughes

Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.

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