Update re: On the Economy

January 27th, 2021 at 11:48 am

Jared Bernstein will not be blogging here while he serves as a member of President Biden’s Council of Economic Advisers. We will continue hosting this site as an archive.  -CBPP

November jobs report shows clear, virus-related slowing

December 4th, 2020 at 3:54 pm

Payrolls were up 245,000 last month, the slowest month for job gains since the jobs recovery began in April. The jobless rate fell from 6.9 to 6.7 percent, but this was due to a decline in labor market participation, not more jobs (in the households survey from which the unemployment rate is drawn, employment fell). Job changes in virus-affected sectors, like restaurants (down 17,000 jobs), suggest that the spiking virus caseload is hurting job growth. 

Overall, as the figure shows, payrolls remain 9.8 million jobs down from their pre-recession peak. If the pace of gains doesn’t speed up from that of November, it would take about 3 years to get back to the pre-pandemic peak. But this is too low a bar because it doesn’t factor in job growth that would have occurred had we remained on the earlier trend. Hitting that target at this rate would take 4 years (see figure below).

Source: BLS, my calculations

In other words, we’ll need much faster job growth if we are to get back to full employment in a timely manner.

Private sector jobs grew more quickly last month, up 344,000. One reason for this difference was 93,000 fewer temporary federal hires for the 2020 Census. Another is the decline in local education jobs, down 21,000 in November and 688,000 since February, a function of both Covid-induced disruptions to public schools and struggling municipal budgets.

Other concerning indicators from today’s report include:

–A sharp rise in long-term unemployment (jobless for at least 27 months), accompanied by a continuing shift from those unemployed due to temporary layoffs and those facing more lasting job searches. Since August, the number in long-term unemployment is up 2.3 million, the largest such increase on record.

–In-person service jobs, like those in the leisure and hospitality sector, are particularly at risk when the virus is spiking. After growing at a solid clip in recent months, restaurant jobs were down 17,400 in November. 

–The number of private-sector industries adding jobs in November fell sharply, from 71 to 59 percent.

This jobs report shows the clear impact of two intersecting forces: the spiking virus and the fading of earlier fiscal relief packages passed by the Congress. The former, as noted, is continuing to put firm, downward pressure on the pace of job creation. The latter means that fiscal support is fading well before the job market is up to the task of replacing lost labor incomes. 

Since the Federal Reserve is already doing what they can to keep the cost of credit very low, the missing piece is added fiscal support. As President-elect Biden said today, “If Congress and President Trump fail to act, by the end of December 12 million Americans will lose the unemployment benefits they rely on to keep food on the table and pay their bills.”

The good news is that Congress is considering a new, bipartisan, $900 billion relief plan that would help avoid some of the suffering due to the ongoing health and economic crises. Today’s jobs report provides a clear, unequivocal signal that this package, which is but a partial first step towards a robust, resilient recovery, needs to get quickly into the economy and into the lives of vulnerable families.

October jobs: better than expected but a long way to go

November 6th, 2020 at 11:29 am

Payrolls grew by 638,000 last month, and the unemployment rate fell sharply, by a full percentage point, to 6.9 percent. The report reveals a job market that’s healing, but at a slower pace than earlier in the year and with a long way to go to get back to full employment. Even with the large drop, the October jobless rate remains twice that of the pre-crisis rate.

Government jobs fell (by 268,000) last month, but because this is partially related the cutting back of decennial Census jobs, a clearer signal of underlying labor demand comes from the private sector, which added 906,000 jobs. That’s a decent clip, but in May and June, private sector gains rebounded at a pace of 4 million per month; since then, the pace has slowed to 1 million. At this rate, the private sector will be back to its pre-crises peak around late summer of 2021.

The figure below shows total and private payrolls. The remaining gap is clear–10 million overall and 9 million for private–as is the slower pace of gains. 

Source: BLS

This next figure shows the share of losses left to make back for many groups. The last two bars show that jobs are about halfway back. The first bar shows that because unemployment rate grew over 11 points from its low point to its high point–3.5 to 14.7 percent–and has since clawed back almost 7 points, it has made up 70 percent of its lost ground.

One important take from the figure is the slower progress by Black people. For both unemployment and employment rates, they lag other groups, having made back just half of their losses. This is an often-seen pattern for persons of color in weak labor markets, as they face labor market barriers, including racial discrimination, whose impact is accentuated in periods of weaker demand. 

Another worrisome sign in today’s report comes from the extended duration of unemployment for some jobless workers. About a third of the unemployed are now long-term unemployed (searching for work for at least six months), compared to 4 percent in April. This reflects that when this initial shutdown occurred, many workers went on temporary layoff, and, in fact, the bulk of the decline in unemployment last month came from these temporary layoffs getting back to work. But this means that the folks still left on the jobless rolls are in for potentially long spells of unemployment. 

This growth in people stuck in long-term unemployment is particularly problematic because extended unemployment insurance benefits are scheduled to expire at the end of this year. Re-extending these benefits and enhancing the dollar value of the claims should be policy makers’ first order of business in coming weeks. 

Turning to sectoral analysis, almost 70 percent of private industries added jobs last month, a relatively high share given the spiking coronavirus. Notable job gains in this regard can be seen in leisure/hospitality, which includes restaurants and bars, up about 200,000 last month and 400,000 over the past two months.

Of course, it is very possible this gains attenuate in coming months given the sharply rising virus caseloads. While the relationship between the virus and commerce is far from one-to-one, meaning we don’t see March/April-type shutdowns in places where caseloads are climbing, we should be on the lookout for negative effects on jobs in sensitive, face-to-face services.

Finally, especially given lower-for-longer interest rates from the Federal Reserve, Congress needs to get back to the business of providing relief to the millions of workers who still face considerable hardship. State and local budgets are still much reduced, forcing layoffs, and even while the the labor market is improving, it remains far from providing the income vulnerable families need to pay rents, mortgages, child care, and to meet their nutritional needs. 




September 2020 jobs report: Slowing jobs gains and a huge spike in long-term unemployment

October 2nd, 2020 at 11:09 am

Payrolls grew by 661,000 last month, well below expectations, and the jobless rate ticked down to 7.9 percent, driven not by job gains, but by people leaving the labor force. Long-term unemployment spiked sharply–in fact, its largest one-month spike on record–and shifts continue from temporary to permanent job losses. In other words, though the labor market continues to improve, it is doing so at a slower pace, and the risk of increasing numbers of job seekers stuck in long-term joblessness is rising.

Payrolls continue to climb back as commerce gradually recovers, but the pace of gains has slowed, as shown in the figure below. Private sector gains last month were stronger, at 877,000, as local education jobs fell sharply, by 231,000. At least part of that loss is due to the impact of Covid on decline job opportunities for bus drivers, school cafeteria workers, and janitors due to much less in-person teaching.

Importantly, this deceleration in job gains (see figure) is consistent with the absence of two absolutely essential policies from the federal government: virus control and fiscal stimulus. The former was never taken seriously by the Trump administration, at tremendous cost to the lives, health, and living standards of millions of Americans. The latter–stimulus–was initially implemented with real urgency, but the fact that such urgency has demonstrably faded is evident in today’s report.

Source: BLS

No labor market indicators have regained their pre-crisis peak, as shown in the figure below. It shows the percent of losses regained since payrolls started growing and unemployment started falling. For example, the unemployment rate initially rose from 3.5 percent in February to 14.7 percent in April, an increase of 11.2 percentage points. Since then, it has declined to 7.9 percent in September, meaning it filled up 6.8 points of the 11.2 point hole, or 61 percent.

The first point from the table is that all bars are well below 100 percent. Sizable holes still persist and while it has clearly improved, the job market is still operating with recessionary levels of slack. Blacks in particular reveal lagging progress. The recovery of both their unemployment and employment-to-population rates (EPOPs) are lagging behind the others. This is a serious concern which appears to confirm the strong cyclical component of Black labor market outcomes, meaning they benefit disproportionately from strong labor demand and, in the current situation, take more of the brunt of weaker labor demand.

Other signs of decelerating job opportunities include the increase in permanent, versus temporary, job losers (meaning laid-off workers who should not expect to be called back to work as commerce reopens) and the related spike in long-term unemployment, i.e., those seeking work for at least six months. Back in May, when more jobless workers still thought they were temporarily furloughed, permanent layoffs were only 14 percent of the unemployment. In September, that share was 36 percent.

The 781,000 spike in long-term unemployment in September was historically notable: it is the largest one-month increase in this indicator on record, with data starting in 1948 (note: this record holds as a share of unemployment as well, which spike up from 12 to 19 percent). The risk here is what economists call “hysteresis:” the phenomenon of a group of potential workers relegated to the labor market’s sidelines for long periods. Should their skills or even just their basic labor-market attachment fade due to long periods of joblessness, they risk a lasting disconnection from work and wages at great cost to themselves, their families, and the greater economy.

Though it is too early to tell whether these early indicators will morph into a longer-term trend, my work in this area suggests that Black, immigrant, and low-income workers are particularly vulnerable to this outcome. Certainly, the bars for Blacks in the figure above are suggestive of that result, but it is one I will be carefully tracking in coming weeks and months.

Unemployment down but so is pace of job gains

September 4th, 2020 at 11:11 am

Payrolls were up 1.4 million in August and the unemployment rate fell sharply from 10.2 to 8.4 percent according to this morning’s labor market update from the Bureau of Labor Statistics. Payrolls remain 11.5 million below their pre-pandemic peak in February and the jobless rate is still more than twice its February rate of 3.5 percent.

In years that ends in a zero, the federal government temporarily hires many workers to field the decennial Census. It is thus important to look at private sector payrolls to get a more accurate read on underlying labor demand. Private payrolls rose 1 million in August, as temporary Census hires rose by about 240,000.

Turning back to the bigger picture, the figure below shows average monthly job gains or losses in recent months. The massive job losses that occurred in March and April came to 11 million per month. The initial bounce-back when the economy began to reopen–too soon, from the perspective of public health–in May and June added 3.8 million jobs per month. Then, as the virus re-surged, hiring downshifted in the last two months, adding 1.6 million per month. The slower the pace of job growth, the longer it will take to regain the pre-pandemic jobs’ peak. This, however, is a low bar, as the working-age population has grown over this period, implying the need to more employment than existed pre-pandemic.

A broader look at the payroll jobs situation is shown in the next table. The first line shows how many jobs were lost due to the shutdown, both for total payrolls and leaving off the government sector. These massive losses amounted to 22 and 21 million, respectively. Since then, through August, 10.6 million jobs have been regained in the overall job market, 10.5 million in the private sector. This leaves holes of about 11 million in both sectors, or gaps of slightly over 50 percent. Simply put, half the job hole still remains empty.

Source: BLS

Even with the welcomed decline in the jobless rate, this is still very clearly a job market that’s recovering, and doing so more slowly, not one that has recovered. Any claims that the U.S. job market is strong, healthy, or providing ample employment opportunities for job seekers is factually indefensible.

Racial disparities

The table below shows that Black and Brown persons have been hit harder and are recovering more slowly than whites by the downturn, a familiar pattern from past cycles. Black unemployment was 13 percent last month compared to 7 percent for whites. Employment rates for Blacks and Hispanics (working age) are down 7 percentage points compared to 5 for whites.

While the jobless rate fell, we are seeing a concerning development in unemployment: a shift within the unemployment away from temporary toward permanent job losers. Here’s how the BLS put this:

“As in the prior 3 months, the decrease in unemployment in August was driven by a decline among people on temporary layoff (-3.1 million). The decline was partially offset by an increase in the number of permanent job losers, which rose by 534,000 to 3.4 million.”

In fact, the share of the unemployed who are permanent job losers, versus those on temporary furloughs, almost tripled in recent months, from 11 to 30 percent. A related, worrisome development is the shift to longer-term unemployment: the share of job losers unemployed for for at least 15 weeks has gone from 8 percent in April to 60 percent in August.

K-shaped recovery

Another important pattern developing in the current recovery is the disparity between the experience of higher and lower income households. The stock market is up, but so are reports of hunger and evictions.

Economist Jesse Rothstein did some recent analysis of the K-shaped recovery in labor market earnings. In periods like this, wage snapshots of the type we get in today’s report are inaccurate, as disproportionate job losses for low-wage workers mean that high-wage workers are a larger share of those who still have jobs, creating an upward bias in snapshot wage trends. The figure below thus tracks pay changes for the same workers across time, assigning zero earnings to job losers and comparing post-pandemic trends to pre-pandemic trends.

Because job losses have been concentrated among low earners, their earnings declines have been much steeper than those of higher earners. The figure shows the decline in labor earnings for both groups since the pandemic compared to pre-pandemic trends (these data go through July). Real earnings fell as much as 20 percent for those in the bottom half compared to 4 percent 5 percent for top-half earners.

Source: Jesse Rothstein and my analysis of CPS data.

In sum, the failure of the Trump administration to control the virus has led to a slower pace of job gains and, while the jobless rate fell significantly last month, it is still in recessionary territory and more job seekers are at risk of longer-term unemployment. Importantly, note that this shift is occurring as Congress, particularly Senate Republicans, has dropped the ball on further fiscal relief, including enhanced UI benefits. Finally, there is evidence of a K-shaped recovery underway, as both the stock market and hunger are rising, and as earnings losses are concentrated among those in the bottom half.