July jobs: Labor market keeps ticking, but virus surge is slowing pace of gains

August 7th, 2020 at 10:39 am

The labor market kept ticking in July, but the re-surging pandemic led to slower hiring across most industries. Payrolls rose 1.8 million last month, compared to average monthly gains of 3.8 million in May and June, and payrolls remain 12.9 million jobs down from their February peak (see figure). The jobless rate ticked down to 10.2 percent, but remains highly elevated–that’s still higher than the peak of the last recession–and the share of the prime-age (25-54) population working remains almost 7 percentage points below Feb’s level.

Because of an unusual interaction between pandemic-induced layoffs in local schools and the BLS seasonal adjustments (explained below), the overall job gain is biased up in July. Looking at private sector employment avoids this bias, and payrolls there rose 1.5 million in July compared to an average of 4 million per month in May/June. As usual, we must adhere to the the caveat that one month does not a new trend make. But if this slower trend persists–which could happen, given the impact of surging cases on commerce–it will take until next spring to regain the pre-crisis peak for private sector jobs.

The table below shows that the overall unemployment rate remains highly elevated relative to its February trough of 3.5 percent, and, as is always the case, the increase in joblessness and the decrease in employment rates (the share of prime-wage workers with jobs) are significantly worse for persons of color (note: because of ongoing classification issues, the BLS reports that the actual jobless rate is probably about a point higher than the published rate, but the trend is the same). The Black decline in jobless rates of 9 percentage points is just a few points shy of their total gains in this metric over the past decade, meaning they’ve gained back very little of those losses.

Other signs of a viral-surge-induced slowdown in the job market include:

–Significant weakness in the July manufacturing numbers: After adding an average of about 300,000 jobs per month in May/June, the factory sector added only 26,000 in July. The share of manufacturing industries adding jobs fell from 77 to 43 percent, and the sector remains 740,000 jobs, or 6 percent, below its pre-crisis peak.

–A shift toward longer-term unemployment: In June, 81 percent of the unemployed had been so for less than 14 weeks. In July, that share fell to about half, and those jobless for 15-26 weeks spiked from 11 to 40 percent.

Whether these one-month changes persist into deteriorating trends bears watching.

As noted, July’s topline job-gain number of 1.8 million is biased up by an unusual technical problem having to do with the interaction between the impact of the virus on education jobs and the BLS seasonal adjustments for that sector. Typically, in July, many who work in the education sector leave for the summer, consistently over 1 million, or almost 20 percent of employment in the sector (not just teachers, but also janitors and others who stop working at the school in the summer). To account for this seasonal effect, the BLS adds back about this same amount—around 1 million—to the seasonally adjusted July data for local education jobs.

But this year, because of the pandemic shut school buildings down well before the summer, these seasonal layoffs occurred earlier in the year, around April. However, the seasonal adjustment is based on the normal, historical pattern, and it thus added 1.2 million jobs to local education in July. That is, a relatively large seasonal factor was plugged in to offset a large number of expected layoffs that didn’t occur this July. This likely biased up the topline number by over 500,000 jobs.

It is therefore much more instructive in this case to look at year-over-year changes in the state and local sectors. Using that metric, jobs are down by 1 million, about 6 percent, as should be expected given the deep budgetary shortfalls faced by states and towns across the land.

This month’s snapshot of the job market is suggestive of a slower pace of recovery than we saw in May and June, surely driven by commerce pulling back as the virus has re-surged in various parts of the country. The nation is still climbing out of the huge hole resulting from the shutdown, we have a long ways to go, and we’re probably climbing out more slowly. There is certainly nothing in today’s report that should in the slightest dampen the urgency to help economically vulnerable Americans get through to the other side of this crisis. Such urgency needs to reach Congressional negotiators, who must immediately finish their negotiations and pass the next relief package.

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