– October 2, 2020

U.S. nonfarm payrolls posted a fifth monthly gain in September, adding 661,000 jobs. However, the latest gain is the slowest so far in the recovery, and the five-month total gain of 11.42 million is far from offsetting the 22.2 million loss in March and April (see first chart).

Private payrolls added a more impressive 877,000 jobs in September but was also the slowest of the recovery and brings the five-month total gain to 11.39 million versus a loss of 21.2 million in March and April. Total and private payrolls remain well below the February peaks (see first chart).

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

Within the 877,000 gain in private payrolls, private services added 784,000 while goods-producing industries gained 93,000. For private service-producing industries, the gains were led by a 318,000 increase in leisure and hospitality followed by retail with a gain of 142,000, and health care and social-assistance industries with a 108,000 increase. Within the 93,000 gain in goods-producing industries, durable-goods manufacturing increased by 46,000, construction added 26,000 jobs, nondurable-goods manufacturing rose by 20,000, and mining and logging industries added 1,000 jobs. Despite the gains over the last five months, every industry group had fewer employees in September than in February. The net losses range from a 0.8 percent drop in utilities workers to a devastating 23 percent plunge in leisure and hospitality (see second chart).

The government sector cut 216,000 employees in September, with local government education payrolls dropping by 231,100, state government eliminating 49,400 education positions, and the federal government cutting 34,000 workers. Local government outside of education added 96,400 new employees.

Average hourly earnings rose 0.1 percent in September, putting the 12-month gain at 4.7 percent. Combining payrolls with hourly earnings and hours worked, the index of aggregate weekly payrolls rose 1.1 percent in September following a 1.3 percent gain in August. The index is still down 1.7 percent from a year ago.

The total number of officially unemployed fell to 12.58 million in September, a drop of 970,000 from August. The number of officially unemployed in February was just 5.8 million.

The unemployment rate fell to 7.9 percent from 8.4 percent in August while the participation rate ticked down to 61.4 percent from 61.7 percent. The participation rate was at a cycle high of 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 14.2 percent in August to 12.8 in September; the peak was 22.8 percent in April.

The September jobs report supports the view 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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