The US labor market recovery continues to slow, with 661,000 jobs added in September and the unemployment rate dropping to 7.9%. The economy has now added back 11.4 million of the 22 million jobs lost in March and April. The final jobs report before the November election shows an economy that is recovering but remains constrained by impacts of the coronavirus pandemic.
Top Takeaways from the Report
Growth Below Expectations
The September US jobs report showed a labor market that is struggling to recover from the global pandemic and the resulting economic contraction. While 661,000 jobs were added in September, this is below the expectation that 894,000 jobs would be created and is much lower than August job growth of nearly 1.5 million jobs.
The labor market has now added back 11.4 million of the 22 million jobs lost early in 2020. In March and April, COVID-19 caused widespread shutdowns and severely constrained travel. This thrust the economy into a severe recession, with the US Gross Domestic Product contracting 31.4% in the second quarter of this year.
Slower Growth Expected to Continue
The labor market appears to be entering a new phase of the recovery, characterized by slower growth amid continued uncertainty as COVID-19 continues to spread. While many employment sectors continue to improve, signs of trouble are emerging, as the number of companies announcing layoffs increases.
This week, Walt Disney announced permanent layoffs of 28,000 theme park workers. American Airlines and United Airlines also announced a combined total of 32,000 job cuts, after Congress was unable to agree to a new coronavirus relief package. These new layoffs were not reflected in the September jobs report but will impact future reports.
Other Labor Market Indicators Remain Mixed
In addition to the top line payroll number, the monthly jobs report showed a mixed bag of indicators about the health of the economy. The unemployment rate continues to drop, hitting 7.9% in September. This is down from 8.4% in August and significantly lower than April, when it hit 14.7%. However, unemployment is still much higher than the pre-pandemic rate of 3.5% in February.
On the other hand, the labor force participation rate dropped from 61.7% in August to 61.4% in September. This contraction shows that while many people are returning to jobs, many are also giving up on the job market altogether.
Growth by Industry
Industry-level employment growth, for the most part, reflected continued recovery in several sectors.
Leisure and hospitality employment growth was strong in September, with the industry adding 318,000 jobs. Most of the gains came from the food services and drinking places sector, which added 200,000 jobs as restaurants and bars continue to reopen across the country.
Other notable industry employment gains include retail trade (+142,400), professional and business services (+89,000), transportation and warehousing (+73,600), arts, entertainment, and recreation (+67,000), and manufacturing (+66,000).
Industries seeing slower growth in September included financial activities (+37,000), other services (+36,000), information (+29,000), wholesale trade (+18,700), and construction (+14,000). Employment in mining changed little.
The government sector experienced a large decline in September, shedding 216,000 jobs. Despite some sectors of government maintaining positive employment growth, most of that positive growth was negated by losses in the local government education sector (-231,100) stemming from fewer schools coming back in person this fall.
The Bottom Line
Beating the Average, Missing the Mark
The U.S. has experienced a record breaking 5 month run of job gains. From May to August, every month of job growth exceeded the previous monthly record set in 1983. Even with fewer jobs added, September’s job growth was still one of the 15 highest numeric job growth months on record. In total, the U.S. has added 11.4 million jobs in the past 5 months – 9 million more than the previous 5 month record set in the year after World War 2 ended. In a vacuum, these numbers would be regarded as a sign of the strongest economy ever.
But these numbers do not exist in a vacuum. They exist in a world where the U.S. lost 22 million jobs in March and April as a result of the global pandemic. The United States still has 10.7 million fewer jobs than it did in February. For reference, during the Great Recession of 2007-2009 the U.S. economy lost a total of 8 million jobs. The rate of job growth has also slowed considerably, shrinking from 4.78 million jobs added in June to 661,000 jobs added in September. If the rate of job growth experienced in September continues, it will take the U.S. until January of 2022 to get back to its February 2020 employment level.
With an election looming and coronavirus cases increasing, uncertainty remains very high in the U.S. economy. The need for continued federal stimulus is more important than ever. Economic fundamentals were strong heading into the pandemic and once an effective treatment for the virus is achieved the economy should return to growth. However, as we’re approaching the seven-month point of the pandemic, longer term economic impacts appear to be setting in, which could hinder the potential for future growth.
About us. The division of Economics and Public Policy at Zions Bank informs and educates employees, clients, and the community-at-large by providing insight and analysis on issues related to local, national and global economic trends as well as federal banking policies. The primary goal of the Economic and Public Policy team is to help individuals and businesses understand important issues that can impact their daily financial decisions. For more information and analysis, please visit www.zionsbank.com/economy.
