Another Better Than Expected Jobs Report For October
The U.S. labor market recovery continued in October at a fairly rapid clip, though the pace of net job creation slowed for the fourth consecutive month to a gain of 638k jobs down from a 672k gain in September.
The job recovery last month was stronger in the private sector, which increased payrolls by 906k jobs – a 226k job overshoot of consensus forecasts.
The headline nonfarm payroll increase would have been stronger, but was held back by a large drop in government jobs, which sank by 268k last month as state education jobs declined by 61k, local governments shed 98k jobs, and 148k Census workers were let go. In the last expansion, following the Great Recession, the loss of government jobs held back overall job growth for four years. A similar pattern may begin to appear in this expansion if more Federal government support is not rushed to state and local governments across the country.
The best news from the October payroll report comes from another 1.0 percentage point decline in the official unemployment rate to 6.9% from 7.9% in September. The number of unemployed declined by 1.5 million to 11.1 million people and the labor force participation ratio improved to 61.7% from 61.4% in September. The number classified as unemployed on temporary layoff dropped by 1.4 million to 3.2 million in October. This number was as high as 18.1 million in April.
On a less positive note, the number of long-term unemployed now comprise approximately 32.5% of the total unemployed. Those unemployed for 27 weeks or more increased by 1.2 million to 3.6 million. The Labor Department also noted that the official unemployment rate may be as much as 0.3 percentage points higher at 7.2%, if the unemployed were being classified accurately.
The largest job gains last month came from sectors of the U.S. economy where payrolls were devastated earlier in the year and have been slower to recover as businesses reopened. Job gains were solid last month for leisure and hospitality, professional and business services, trade and transportation, and construction sectors. However, with coronavirus cases resurging as we enter the winter months, it is unlikely these service sector businesses will be able to keep up this job creation pace in the months ahead.
Despite an overall solid employment report for October, notes of lingering weakness can be seen in the lackluster employment gains coming from some very big and important sectors like education and health care, manufacturing, financial services, and information services. Without stronger follow-through from these sectors, the reopening job recovery we have seen over the past six months will quickly fade.
It is important to remember that despite the progress in job recreation over the past six months, the pandemic labor market scar remains deep and will be with us for years to come. Nonfarm payrolls are still 10.1 million below their February peak in October and both goods and services job losses are equivalent to deep recessionary levels of the past. No longer at Great Depression levels, but for service businesses far worse than what was seen during the worst of the Great Recession.
The October jobs report will prompt a downward revision in our unemployment rate forecasts for the fourth quarter of 2020 and early 2021, but the pandemic’s resurgence remains an imminent threat to these sanguine forecasts if state and local governments are forced to re-impose large scale business shutdowns again to contain the virus.
To find out more, check out this week’s U.S. Outlook Report.