US Job Market: Low End Recovering First

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US Job Market: Low End Recovering First

Today we will do our usual deep dive into last Friday’s US Employment Situation Report and focus on which sectors are bringing back workers and which still seem stuck in neutral. First, though, we need to address that “asterisked” unemployment number of 13.3%:

  • The Household survey actually had 2 problems last month, not just the one you likely read about.
  • First, the sample size was much lower than pre-COVID, with a 67% response rate versus about 82% normally.
  • Second, the Bureau of Labor Statistics/Census Bureau misclassified workers who expect to return to their jobs but were not working last month as “employed but absent from work due to other reasons”.
  • This skewed the headline unemployment rate by about 3 points, so May’s reported number of 13.3% would have been 16% under the traditional definition of unemployment. Last month’s unemployment rate would have been 19%, so no matter what the US labor market is improving.

Now, on to the Establishment Survey to answer the question posed at the top of this section:

#1: Here are the 5 industries responsible (and then some) for the 2.5 million jobs added in May, how many jobs were lost in March/April, and the percent regained in the last month:

  • Leisure and hospitality: 1,239,000 jobs added in May
    Number of jobs lost in March/April: 8,282,000, so May saw a 15% recovery.
  • Construction: 464,000 jobs added in May
    Number of jobs lost in March/April: 1,060,000, with 44% recovered in May.
  • Education and Health Services: 424,000 jobs added
    Number of jobs lost in March/April: 2,768,000, with 15% recovered in May.
  • Retail trade: 367,800 jobs added
    Number of jobs lost in March/April: 2,373,800, with 16% recovered in May.
  • Manufacturing: 225,000 jobs added
    Number of jobs lost in March/April: 1,370,000, with 16% recovered in May.

Takeaway: May’s jobs growth came entirely from sectors that provide many lower skilled workers with employment, and this is very good news. America’s economic restart is helping many workers displaced by shutdowns who might otherwise have fewer reemployment options. And between these 5 sectors, there are still 13 million jobs to reclaim as the American economy gets back up and running.

#2: But… it also means that some important sectors netted out to less than zero last month. Here those are:

  • Government (Federal, state and local): 585,000 jobs lost in May
    Total losses since March: 1,565,000 positions
  • Professional and business services: 127,000 jobs added in May
    Total losses since March: 2,156,000 positions
  • Financial services: 33,000 jobs added in May
    Total losses since March: 249,000 positions
  • Information Technology: 38,000 jobs lost in May
    Total losses since March: 316,000 positions
  • Transportation and warehousing: 19,000 jobs added in May
    Total losses since March: 582,200 positions

The upshot here: there were 4.8 million jobs lost in these sectors during the national COVID Crisis shutdown and May showed little in the way of reinstating them. Note that several (financial/professional services, IT), typically require a college degree. This may be one reason why college-educated unemployment only fell by 1 point last month (8.4% to 7.4%) while high school-only joblessness fell by 2 points (17.3% to 15.3%) despite rising labor force participation among both groups.

#3: Pulling these 2 points together we can construct a framework with which to consider the pace of future job gains:

  • May’s data suggests the US labor market will recover more quickly at the low end, driven by the first group of industries we highlighted. Leisure/hospitality and retail, for example, may not hire back 100% of their pre-COVID workforce but even if 70-80% return that will give us several months of at least 3-5 million jobs added.
  • The second group is going to have a tougher time. Government hiring will likely remain under pressure at the state and local levels for the rest of 2020. Financial/professional services/Technology firms will only cautiously rehire, since staffing here can be expensive.

The bottom line to all this: markets rallied on Friday on the back of the Jobs Report because investors saw a clear sign the bottom is in for the US labor market. Fair enough – that’s probably right, especially when it comes to the headline unemployment and jobs added data. What we’ll need to see now is a “flywheel effect”, where this initial round of hiring begets more hiring throughout the American labor market. We’ll be watching college-educated unemployment very closely in the coming months, as this demographic group is the lynchpin to increased consumer spending in 2021 and beyond.