By now you likely know the basics of last Friday’s August US Employment Situation report, but here is a quick recap:
- Unemployment rate of 8.4%. This is somewhat better than the 9.1% average between pre-COVID February 2020 (3.5%) and the COVID Crisis peak in April 2020 (14.7%).
- There were 1.371 million jobs added to US payrolls in August as businesses continue to reopen. March and April 2020 job losses totaled 22.2 million. With the August results 10.6 million jobs (48%) are back online.
- U-6 unemployment, the most complete measure of US joblessness, fell to 14.2% from 22.2% at its April peak.
- Labor force participation rates increased to 61.7%, basically halfway between February’s 64.3% and April’s 60.2%.
The bottom line to the report is pretty straightforward: the US labor market is still in a deep recession but essentially 50% back to normal relative to the depths of the COVID Crisis as compared to pre-pandemic conditions.
Now, here are 3 less discussed datapoints from the report we think merit your attention:
#1: The uneven pace of labor market recovery in Retail trade and Leisure/Hospitality positions, which together were 21.3% of the US workforce in February but only 19.7% in August. Here is a graph of employment for each category over the last year, with total retail jobs in red and leisure/hospitality in blue:
As you can see, retail (red) has come back somewhat more strongly than leisure/hospitality (blue). As compared to February seasonally adjusted levels, 81% of retail jobs are back versus 76% of leisure/hospitality jobs.
Takeaway: continued underemployment in these two systematically important industries, both heavily affected by COVID, are on their own worth 3.0 points of August’s 8.4% unemployment rate. As you can see in the chart above their rate of improvement is slowing. That makes sense given ongoing COVID restrictions, but it also points to the challenges both industries and their workers will face until a vaccine is widely available.
#2: Long term joblessness can damage workers’ prospects for re-employment, so we’re starting to monitor the percent of the unemployed US workforce that has been jobless for 15 and 27 weeks or longer (blue/red lines, respectively, below):
Takeaway: 60.1% of unemployed workers in August 2020 had been without a job since at least April (15+ weeks), which as a ratio is very close to the all-time high of 61.1% in April 2010. The 27 week-plus cohort is still quite small as a percent of the total (12.0% vs. the April 2010 peak of 45.5%), but the two lines presented in the graph above will naturally converge over the next 3 months unless there is a speedy US labor market recovery.
#3: There continues to be a lot of discussion about the difference in stock and labor market performance in 2020, so let’s briefly consider the following chart of the US unemployment rate back to 1980 and follow on with the S&P 500’s total return during periods of peak joblessness.
The 4 peaks back to 1980 are clearly visible; here is how the S&P 500 performed around those timeframes:
- Peak #1: November/December 1982 (10.8%). S&P total return in 1982 was 20.4%.
- Peak #2: June 1992 (7.8%). S&P total return in 1991 was 30.2%, in 1992 7.5%.
- Peak #3: June 2003 (6.3%). S&P total return in 2003 of 28.4%.
- Peak #4: October 2009 (10.0%). S&P total return in 2009 of 25.9%
Takeaway: there’s nothing historically unusual about the S&P’s price action in 2020 relative to labor market conditions.
Final thought: while Friday’s report looked pretty good on the surface, the first two points presented above show why further fiscal stimulus is necessary. Retail and Leisure/Hospitality workers certainly need further support, or many will leave the labor market for good. And as the length of unemployment grows, those individuals will also require additional financial resources if they need to retrain or move to find new employment.