Three points on the latest US Employment Situation report out on Friday:
#1: The number of jobs added was light versus expectations (+661,000 vs. 800,000), which raises concerns about slowing momentum in the US labor market. But is it reasonable to expect job recoveries to improve smoothly? Here is what the data says:
2010 US jobs recovery (3 months strong, 4 months weak, then OK thereafter):
- The number of total jobs in the US bottomed in February 2010 at 129.7 million (seasonally adjusted).
- We then had 3 months of consistent improvement to 130.7 million.
- But… then we had 4 months of declines, back to 130.4 million. It would take another 2 months (until November 2010) to hit a new high for US jobs (130.8 million). After that, US labor market gains were more consistent.
2003 US jobs recovery (2 months good, one month not, strong thereafter):
- The bottom here was in August 2003, at 130.1 million US jobs.
- There were then 2 months of good improvement, and by October total jobs stood at 130.5 million.
- The next month (November 2003), however, saw almost no job gains (just 30,000).
- Past this point, job growth accelerated nicely.
1991 – 1992 US jobs recovery (a long trough, 5 months good, one miss, strong thereafter):
- Unlike the 2003 and 2010 experiences, where it took 4-6 months for the number of US jobs to bottom before starting to recover, in 1991/1992 it took almost a year (11 months, from April 1991 to March 1992, when total jobs stagnated at 108 million).
- Once jog growth began in April, it ran strongly for 5 months (+560,000 jobs total) but still sputtered in September (adding only 34,000 jobs).
Bottom line: September 2020’s modest miss to job growth expectations fits the historical pattern of past labor market recoveries, which are typically sporadic at first.
#2: For our money, the most worrisome number in Friday’s report was Labor Force Participation (LFP, the percent of adult Americans either employed or looking for work). It fell from 61.7% to 61.4% last month, which was why the unemployment rate still fell to 7.9% in September versus expectations of 8.2%.
Here is the problem in a graphical nutshell: the chart below shows monthly LFP from 1990 – present, highlighting that it was 63.4% in February 2020 but is 2 points lower now. That is 5.2 million Americans who were in the labor force 7 months ago but are not there now.
Takeaway: in addition to helping unemployed households pay bills, fiscal stimulus in the form of one-time checks and enhanced unemployment benefits are key drivers of holding LFP steady during recessions. There’s enough economic research on this topic that investors understand that dynamic, which is one perhaps underappreciated reason why markets key off the daily headlines related to this topic.
#3: There are still 10.7 million US jobs missing relative to February 2020 (152.4 million then, 141.7 million now); here are the industries/sectors that make up the bulk (70%) of that difference:
- Leisure and hospitality: 3,840,000 (36% of all February jobs still missing)
- Office administration, support, facilities management: 954,000 (9%)
- State and local government educational services: 836,000 (8%)
- Health Care: 668,000 (6%)
- Retail trade: 483,000 (5%)
- Private Education: 355,000 (3%)
- Transportation (passenger airlines, local transit, etc.): 350,000 (3%)
Takeaway: these are the positions it will take more time to fill, and you can trace substantially all of them back to COVID containment measures.
Summing up: the US economy is certainly adaptable enough to keep adding more jobs in the coming months, further whittling away at unemployment. We’re not worried about that. What does give us pause, however, is the interplay between lasting damage to sectors like leisure & hospitality/the others listed above and participation rates.
The layoff news out of Disney last week is a good example of this. That is a company with an excellent brand, competent management and great access to cash/capital markets. If Disney is resetting its workforce, others will follow, and where will these laid off workers find their next job? How long will they look? While these may not be here-and-now questions, they are still important when considering the shape of any US economic recovery and what corporate earnings will look like over the next several years.