Chief Economist Scott Brown discusses current economic conditions.
Nonfarm payrolls continued to recover in September, although the pace of improvement has slowed and we are unlikely to return to February levels until the pandemic is well behind us. The impact of COVID-19 has been uneven, with job losses remaining more severe in lower-paying service industries. Consumer spending has improved, though mixed across sectors. Further fiscal support will be critical for the unemployed.
Nonfarm payrolls rose by 661,000 in the initial estimate for September, slower than in July (1.761 million) and August (1.489 million). There are two seasonal forces at play in September. We normally add jobs in education and lose those related to the summer travel season. This September, prior to seasonal adjustment, education jobs rose less than usual (1.160 million, vs. 1.445 million a year ago), while fewer non-education jobs were shed (-23,000, vs. -1.030 million a year ago). Less seasonal hiring implies fewer seasonal layoffs later on.
While much of the focus is on the pace of job growth, it’s important to take a step back and look at the longer-term picture. Payrolls fell by 22.1 million (14.5%) from February to April and have rebounded by 11.4 million (8.8%) from April to September. That still leaves us down by 10.7 million (7.0%). Weakness has been more severe in leisure and hospitality, but even “strong” sectors like manufacturing and construction are 5% or more below pre-pandemic levels.
The unemployment rate edged down to 7.9% (from 8.4%), but mostly because people exited the labor force (to be counted as “unemployed,” you have to be actively looking for a job and many have given up.
Weekly claims for unemployment benefits, while less horrific than in March and April, are still trending at an elevated level. People and businesses are getting used to living in a pandemic, and we can expect further job gains in the months ahead as the economy continues to recover. At the same time, as the pandemic continues, temporary layoffs are becoming permanent and firms can be expected to focus on cost-containment. Labor is typically the largest expense for most firms.
Job losses have weighed more heavily at the lower end of the income spectrum, but these aren’t big spenders. The top 20% of income earners account for more than half of personal income and more than half of consumer spending. White collar workers have been more able to work from home and to adapt to the pandemic. In turn, while nonfarm payrolls are still down 7.0% from February, overall consumer spending is down 3.4%. Spending on consumer durables, including motor vehicles, is higher than in February. Spending on clothing, gasoline, and consumer services won’t fully recover until the pandemic is in the past. Unfortunately, a vaccine is unlikely to be 100% effective, a third of the population may not take it, and even with a vaccine, many will be reluctant to venture out in crowds for some time.