U.S. Adds 638,000 Jobs; Unemployment Rate Drops

Labor force participation rises, but so does long-term unemployment

Roy Maurer By Roy Maurer November 6, 2020
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U.S. payrolls rose by 638,000 in October, and the unemployment rate fell sharply to 6.9 percent from 7.9 percent, even though the majority of that rebound are people returning from temporary layoffs, according to the latest employment report from the Bureau of Labor Statistics (BLS).   

A little over half of the 22 million workers furloughed or laid off at the onset of the pandemic in March and April have now been rehired.

Job gains were higher than expected—losses in public-sector employment brought down the total—but the increase is still the smallest monthly gain since May, evidence that the economic recovery is continuing to slow down amid a backdrop of rising coronavirus cases.

"The report was modestly good news—payroll gains merely flattened out at a small fraction of what we saw early in the recovery," said Josh Wright, chief economist at Wrightside Advisors, an economic research and consulting firm based in New York City. "The [unemployment] numbers were more encouraging, with the unemployment rate dropping below 7 percent amid higher labor-force participation. The key to the outlook is that the U.S. labor market continues to sustain permanent damage and the numbers continue to send clear warning signals that left to its own devices, the recovery will continue to slow."

Nick Bunker, an economist at the Indeed Hiring Lab, characterized the news as "New month, same story. Employment rates are still well below what they were earlier this year. The recovery continues, but we still don't know how long it will take."

The economic recovery still has a long way to go, added Julia Pollak, a labor economist at ZipRecruiter, an online employment marketplace in Santa Monica, Calif. "Even after the recent gains, we still have 10.1 million fewer jobs than before the pandemic. By comparison, we lost 8.7 million jobs overall in the Great Recession," she said.

Employment gains in October were driven by industries hard-hit by the pandemic, she added. "The leisure and hospitality and retail sectors recovered a combined 375,000 jobs as many states and cities eased coronavirus restrictions and increased capacity limits on restaurants, gyms and stores. But employment in the leisure and hospitality sector is still more than 20 percent lower than it was in February."

It remains to be seen whether industries like retail and leisure and hospitality will continue to steadily add jobs as a third wave of COVID-19 cases surge around the country, said Daniel Zhao, Glassdoor senior economist.

Professional and business services added 208,000 jobs in October, with temporary staffing accounting for about half of that gain. Construction employers added 84,000 jobs, employment in transportation and warehousing increased by 63,000 and jobs in health care increased by 58,000, with the largest gains occurring in hospitals (+16,000). These increases were partially offset by a decline of 9,000 jobs in nursing and residential care facilities.

"Some sectors of the economy are still shedding jobs," Pollak said. "Air transportation, educational services and nursing homes—parts of the economy heavily disrupted by the pandemic—continued to lose jobs. They face big challenges in 2021."

Employment gains overall were offset in part by the loss of 268,000 public-sector jobs. "Excluding government workers, private payrolls rose 906,000, essentially unchanged from the 892,000 jobs gained in September," Zhao said.

"Government payrolls continue to shrink from the federal government shedding Census workers and state and local government shedding education jobs," Wright said. About 147,000 temporary Census workers finished their work last month. 

"The decline in public sector employment, particularly state and local government, could become more concerning if government budgets don't see any fiscal help from the federal government," Bunker said.

Improving Unemployment Picture Still Murky

The unemployment rate fell for the sixth straight month in October, dropping a full percentage point as labor-force participation rose to 61.7 percent from 61.4 percent—an increase of 724,000 people.

The lion's share of improvement in the unemployment rate, however, is due to the number of furloughed workers being recalled to their jobs or finding other employment, Zhao explained. The number of people on temporary layoff declined from 4.6 million in September to 3.2 million in October. "While the rehiring of furloughed workers is pulling unemployment down rapidly, it is the low-hanging economic fruit of the recovery," Zhao said.

The report also continued to reflect a worrying trend: Many temporary layoffs are becoming permanent. The number of people citing permanent job loss held steady at 3.7 million in October. "This is the underlying issue that, behind the pandemic itself, most threatens the near- and medium-term outlook for the U.S. economy," Wright said.

He added that pre-pandemic unemployment levels remain far off and long-term joblessness is growing. "Seven months after the initial wave of stay-at-home orders, the ranks of the long-term unemployed jumped by well over 1 million to 3.6 million, accounting for about one-third of the total unemployed," he said.

More than 21 million people are receiving some form of unemployment benefits, according to the Department of Labor's latest weekly jobless claims report. A growing number of workers have exhausted their state unemployment benefits and have signed up for alternative federal emergency programs due to expire at the end of the year.

On the other hand, the underemployment rate that includes discouraged workers and those only able to secure part-time work fell in October and female labor force participation recovered slightly.

"But women's participation remains disproportionately affected by the pandemic," Pollak said. "Since February, the labor force participation rate for men aged 25 to 54 has fallen by 1.4 percentage points, while that for women in the same age group has fallen by 2.4 percentage points. The slight recovery among women last month coincided with an increase in employment in child daycare services."

Experts agree that economic recovery will depend on the course of the coronavirus and the BLS report follows a week where the U.S. topped 100,000 new infections in a single day for the first time. "The jobs report is a look back in time and doesn't fully incorporate the effects of the most recent wave of COVID-19 cases," Zhao said. "The trajectory of the recovery is not set in stone, and resurgent headwinds could certainly derail progress."

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