Covid Spike Hits the Labor Market, and Its Likely to Worsen – Barron’s

The pandemic his hit a wide variety of sectors, from air travel to retail, and hiring figures to remain depressed until vaccines can be deployed widely enough. Here, a pilot at New York's LaGuardia Airport this past week. Spencer Platt/Getty Images

Text size

The economy may not have shrank in November, despite the resurgence of the coronavirus and the continued unwinding of government support. But thats thin gruel to the roughly 12 million Americans who remain underemployed compared with February.

Employers reported 338,000 additional jobs last month, according to the Labor Departments latest nonfarm payrolls report, after excluding layoffs associated with the end of the census. A year ago, that would have been a strong number, but relative to the magnitude of the jobs gap it represents something close to stagnation. After all, the private sector added an average of 945,000 jobs each month from August through October.

Moreover, the underlying details of the data suggest the U.S. job market could easily turn negative in the months ahead, assuming it hasnt already. That risks inflicting hardship on tens of millions of people while we wait for the vaccine to be widely distributed.

Big hiring numbers for delivery and warehouse serviceswhich together added about 120,000 jobsoffset outright declines in a wide range of sectors including retail, restaurants, schools, tech, publishing, banking, accounting, consulting, and nursing homes, which together lost almost 120,000 jobs. Meanwhile, there was almost no job growth in many other sectors, including construction, manufacturing, personal services, hospitals, and local governments excluding education.

Newsletter Sign-up

Every weekday evening we highlight the consequential market news of the day and explain what's likely to matter tomorrow.

The hit to retail and restaurants can likely be explained by the resurgence of the virusand that hit will likely worsen in coming months due to the soaring number of new confirmed cases. The current jobs report, after all, is a snapshot of the week ended Nov. 14, when there were 993,000 new cases, up from 383,000 new confirmed cases in the corresponding October week. In the past seven days, there were more than 1.2 million new cases.

This is also confirmed by the high-frequency data. The number of seated diners at American restaurants fell noticeably between the middle of October and the middle of November, according to Open Table, with an even bigger drop over the past two weeks. The declines were biggest in the states with the worst outbreaks, such as Illinois, Minnesota, and Wisconsin. Meanwhile, the number of Americans filing initial claims for unemployment insurance benefits in the states with the biggest third wave outbreak is up more than 40% since the end of September, even as that number drops in the rest of the country.

At least as concerning as the retail and restaurant hit is the continuing weakness in professional-services employment, which reflects the spread of the economic pain from directly affected sectors to the rest of society. In percentage terms, the monthly drop in employment at computer systems design and related services was twice as bad as the decline at restaurants and bars. As of November, employment across Americas total tech sectorwhich is predominantly computer systems design, but also includes software publishing, data processing and hosting, and internet publishing and web search portalswas down about 2.2% compared with February. Thats worse than the peak-to-trough decline in 2008-09.

Perhaps the biggest warning sign of a negative turn comes from the jobs reports separate survey of households, which implies that employment fell by about 450,000 after accounting for the sharp increase in the number of workers who were likely misclassified as employed with an unpaid absence. At 0.3%, the implied drop in November employment is comparable to whats happening in tech, restaurants, retail, and public schools.

The number of people counted as unemployed barely dropped, thanks to a downtick in people reporting they were on temporary layoffbut that was only because 400,000 Americans stopped actively looking for work due to a lack of jobs. As a result, there are still 12 million Americans who are either out of work or who are working part time but would prefer to have full-time jobs.

With multiple vaccines ready to be distributed, its likely that the economy will be able to rebound strongly before the end of next year. Its also likely that things will continue to get worse before they get better, and that the potential for permanent damage to workers and businesses will rise the longer Americans go without income support.

Write to Matthew C. Klein at matthew.klein@barrons.com

See the article here:
Covid Spike Hits the Labor Market, and Its Likely to Worsen - Barron's