The Recovery Continues
More Jobs Added in August and the Unemployment Rate Falls Lower Than Expected
With 1.37 million jobs added in August, the US labor market continues to recover, although more slowly than in the past few months. However, the big surprise from the jobs report was the unexpected drop in the unemployment rate, down to 8.4%. The unemployment rate is now back to single digits and below the high from the Great Recession of 2008. While the economy continues to improve, it is still far from fully recovered and the pace of growth will be key over the next few months.
Top Takeaways from the Report
Continued but Slower Growth
The US economy continues to recover from the global pandemic, although at a slower rate than in recent months. During March and April the labor market lost more than 22 million jobs. Over the past few months many of those jobs have come back, with 2.7 million jobs added in May, 4.8 million jobs in June, 1.7 million jobs in July, and now 1.4 million jobs in August. However, there are still 11.6 million fewer jobs in the economy than before the start of the contraction. And the pace of growth in jobs has been slowing for the past few months.
The labor market may be entering a period of slower growth, with additional jobs becoming more difficult to add. In the last few weeks, several large corporations announced more than 200,000 employees would be laid off in coming months, primarily in the airline and hotel industries. While layoffs in the spring could be interpreted as temporary, these job losses reflect continued weakness in some sectors of the economy and will be more difficult to bring back.
On the other side of the jobs report, the unemployment rate surprisingly dropped from 10.2% in July to 8.4% in August, beating even the low-end forecast of 8.5%. This is much lower than economists had expected and it shows that many more people are returning to work than had been predicted. Similarly, the labor force participation rate increased from 61.4% in July to 61.7% in August, another increase higher than had been expected and another sign that people are coming off the sidelines and back into the labor force again.
Among the interesting takeaways from the August report is that 24.3% of employed workers continue to telework because of the pandemic. This is down slightly from 26.4% in July. Similarly, 24.2 million people reported that they had been unable to work in August because their employer closed or lost business due to the pandemic. This is down significantly from 31.3 million displaced workers in July.
Growth by Industry
Industry-level employment growth reflected continued recovery in several sectors, along with temporary government hiring.
Government employment increased by 344,000 In August, mostly due to the hiring of 238,000 temporary workers to conduct the 2020 decennial census. This increase in government employment accounts for a quarter of all job gains in August. However, government employment is still 831,000 below its February level.
Other notable industry employment gains include retail trade (up 249,000 jobs), professional and business services (+197,000), leisure and hospitality (+174,000), and education and health services (+147,000).
Industries seeing slower growth in August included transportation and warehousing (+78,000), other services (+74,000), financial activities (+36,000), manufacturing
(+29,000), and wholesale trade (+14,000). In August, employment in construction, information, and mining changed little.
The Bottom Line
No More Federal Help
August marked the first month of limited stimulus since March, with the extra $600 dollars in unemployment payments and the Paycheck Protection Program expiring. With federal stimulus tapering and uncertainty surrounding school reopenings and coronavirus cases still climbing, it remains to be seen if the slowing momentum will continue into September. While most metrics showed no drop in August consumer spending, there are concerns that consumer spending could drop without continued federal stimulus as savings for many are exhausted.
The August jobs report represents an overall positive indicator that the US economy continues to recover, albeit at slowing levels. The unexpected drop in the unemployment rate and the increase in the labor force participation rate are good signs that workers are returning to the labor force. If a COVID vaccine becomes available in the next few months it could help spur more economic growth and the return of even more jobs in America.
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.
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