US Jobs Report: Focus On Labor Force Participation

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US Jobs Report: Focus On Labor Force Participation

Three points on Friday’s US Jobs Report to consider:

#1: We’ve moved from a snapback in the US labor market (May/June data) to a follow-on phase of (hopefully) slower but still steady growth.

  • From February to April 2020 the US economy lost 22.2 million jobs (152.5 million in February to 130.3 million in April) due to COVID Crisis business shutdowns.
  • The cadence of the US labor market recovery has been choppy. May added back 2.7 million jobs, June added back 4.8 million, and July was +1.8 million.
  • Net the recouped jobs against those lost and you get 9.3 million recovered of that 22.2 million total, or 42%.
  • The current unemployment rate of 10.2% is now on par with the two worst periods of joblessness since 1948: December 1982 (10.8%) and October 2009 (10.0%).
  • Labor force participation is, however, currently just 61.4%. That is the worst level since mid 1976 and therefore lower than either prior peak for unemployment (December 1982’s 64.1%, October 2009’s 65.0%).

Takeaway: we’ve moved from truly Depression-levels of US unemployment to “merely” Deep Recession sorts of joblessness. There are still 12.9 million jobs to recover, not including the US’s roughly 1% annual population growth. On top of that challenge, 5.8 million Americans who presumably held many of those jobs have left the workforce since February (hence the drop in participation). They presumably believe their jobs are gone for good and their chances of finding new employment are slim. More on this in a minute.

#2: Unemployment for workers with a 4-year college degree remains higher than any prior period. In July, their jobless rate was 6.7%. That is well higher than the Great Recession peak of 5.0%. As the chart below shows, workers who finished their formal education with a high school degree have an unemployment rate of 10.8%. This is already below their Great Recession peak of 11.0%, but that is largely due to a 3-point reduction in their labor force participation (LFP) rate. The LFP for the college cohort is only down by 1 point this year.

Takeaway: since education and income/spending correlate so strongly, a high college-educated unemployment rate could slow the pace of the US economic recovery. Not only does the record jobless level for this cohort mean less spending by those unemployed, it also likely causes concern among those still employed but worried for their jobs.

#3: Coming back to US labor force participation (LFP, number of people either looking for work or employed as a percent of all adult Americans), we want to share the history of this statistic back to 1948. As much as there are scores of other data points in the Jobs Report we could review, this is the one we keep coming back to:

This is one of those pictures you “can’t unsee”, because it casts such a glaring light on what’s just happened to the US economy. Three points on this:

  • Labor force participation went from 63.4% in February, the highest levels in almost 7 years, to 60.2% in April. That was the lowest reading since 1972, when female LFP was only 44% versus 56% now.
  • As you can see from the chart above, there is no precedent for that sort of drop in LFP back to 1948. It grinded its way higher due to rising female LFP (1970s – 1990s). It grinded its way lower as the population aged (2000 – 2015). It picked up a little as the US economy hit its last late-stage expansion (2015 – 2020). But it has never, ever, just collapsed.
  • Put another way, from February to July 2020, 4.7 million Americans decided they are not part of the workforce. As 2020 began, they were. Now, they are not.

Takeaway: as much as market observers/economists like to paint the monthly jobs numbers as either “good” or “bad”, the LFP data shows any linear characterization is insufficient to describe the state of the US labor market. We are simply in uncharted waters. More than half the states in the union don’t even have 5 million people, and that many people have left the American workforce in the last 5 months.

Final thought: the whole “if things are so bad why are US stock prices so good” meme refuses to die, so just remember that even with Friday’s jobs numbers now looking like a bad recession versus economic depression there is still a great need for further economic stimulus. President Trump’s executive orders on Saturday reflect that political reality. We’re still in the “bad news is good for financial assets” part of the cycle – there’s nothing new about that dynamic. And given where the US labor market sits just now, we’ll be in the same spot for at least the remainder of 2020.