Resilience Emerges in the Labor Market
Job Growth Was Higher Than Expected, with an Encouraging Drop in Unemployment
The US labor market showed surprising strength in the October report released this morning, with 638,000 jobs added last month. The unemployment rate also reflected strength, dropping to 6.9% in October, from 7.9% in September. And labor force participation increased to 61.7%, at the high end of expectations. While the economy remains constrained by the COVID-19 pandemic, the October jobs report reflects an encouraging resilience in the US workforce.
Top Takeaways from the Report
Surprising Strength
The US labor market showed surprising strength in October, with 638,000 jobs added in the month. While this is slower than the 672,000 jobs added in September, it is much higher than many had expected. Job growth was constrained by the layoff of 147,000 temporary Census workers. If not for those lost temporary jobs, the labor market growth would have accelerated in October.
Private-sector employment growth of 906,000 was an acceleration from September, and offset a drop of 268,000 jobs in the public sector.
Other labor market indicators were similarly strong last month. The unemployment rate dropped to 6.9% in October, from 7.9% in September. This is a very encouraging drop and is lower than most economists had expected. And the labor force participation rate increased from 61.4% to 61.7% - again, at the high end of analyst forecasts. This reflects that higher numbers of people are coming off the sidelines and back into the labor market.
Growth by Industry
Industry-level employment growth reflected the surprising strength in the labor market in October. Notable job gains occurred in leisure and hospitality, professional and business services, retail trade, and construction. Only government employment declined.
Leisure and hospitality showed continued strength in October, with an increase of 271,000 jobs.
Jobs in the food services and drinking places sector increased 192,000, followed by arts, entertainment, and recreation (+44,000); and accommodation (+34,000).
The retail trade industry also showed surprising strength in October, adding 104,000 jobs. A third of those job gains were in electronics and appliance stores (+31,000). Employment also rose in motor vehicle and parts dealers (+23,000), furniture and home furnishings stores (+14,000), clothing and clothing accessories stores (+13,000), general merchandise stores (+10,000), and nonstore retailers (+9,000).
Other strong industry gains occurred in professional and business services (+208,000), and construction (+84,000).
Government employment fell by 268,000 in October. However, 147,000 of the jobs lost were due to layoffs to temporary 2020 Census workers. If not for the loss of Census workers, federal employment would have grown by 9,000 in October. Job losses also occurred in local government education (-98,000) and state government education (-61,000).
The Bottom Line
A New Normal
For the past several months, analysts had been hoping for a “V”-shaped recovery in the economy, representing a return to pre-pandemic economic conditions. But markets are dynamic - they adjust to current conditions and expectations of future conditions. The US labor market has now added back more than half of the jobs lost in March and April. However, labor market growth, while historically strong, has continued to slow over the course of the recovery.
While it would be wonderful to add back the remaining 10 million jobs that existed in January, it doesn’t appear that will happen in the near future. Employers are adjusting to the conditions they face today and are making adjustments to their businesses. As long as the pandemic persists it will continue to suppress the growth potential of many industries. And the longer the current conditions last they will become more permanent.
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