As is now customary in the peri-pandemic surreality, the monthly labor data is beset by all manner of cross-dynamics and absolute/relative nuance.
To be clear, the October data are strong, particularly where it matters on the Private Payroll side with a +906K gain while the unwind in Temporary Census Hiring (-147K) and ongoing deterioration in State/Local Gov’t employment (-130K) weighed on the Headline.
In terms of a distilled, zoomed out take: We lost 22.16 mn jobs and have now gained back 12.07 mn. While the monthly gains remain encouraging, the pace of improvement will invariable continue to slow, implying a path back to full labor market recovery defined in years and underscoring the burgeoning incursion of structural damage.
THE DATA:
Contextualizing October within the broader labor setup and in the context of the evolving interplay between cyclical recovery and cumulating structural damage offers some deeper insight. The internals there are also mixed:
- Permanent Job Loss: After rising +879K in Aug/Sept, Permanent Job loss fell -72K in October to 3.684M.
- Long-term Unemployment: Median Weeks of Unemployment rose to 19.3 weeks while the total number of people unemployed for greater than 27 weeks rose a record 1.15Mn to 6.173M. This remains an obviously a critical bucket as those individuals, in addition to the lasting psycho-emotional toll associated with long-term unemployment, did or will gradually lose unemployment benefits.
- Unemployment Rate: The drop in the Unemployment Rate was the “good” kind, as it was characterized by a simultaneous increase in employment, labor force participation and the employment-to-population ratio.
- AHE: Average hourly earnings decelerated modestly to +4.5% Y/Y. Recall, in the present instance, the deceleration is a positive as it reflects the return of lower-wage service sector jobs being included in (and bringing down) the calculation of the average.
- Distribution: Front-line industries (Retail, Leisure & Hospitality) continue to represent a disproportionate share of payroll gains. While positive, the lack of conspicuous improvement in higher-paying WFH sectors (Finance, Tech, etc) are negative and suggestive of longer-term scarring.
NFP vs JOBLESS CLAIMS:
In contextualizing the weekly Jobless Claims data we’ve explicitly profiled the evolution in Continuing Claims.
The dynamic at play is basically this:
As individuals have exhausted the typical 26 weeks of state benefits they have rolled over into PEUC claims, have lost benefits altogether, or have been reemployed. Roughly 44% of the decline in Continuing Claims is due to individuals rolling over to PEUC Claims. The distribution of the balance (whether individuals not transitioning to PEUC are simply losing benefits or are being reemployed) isn’t readily discernable.
Given timing, methodology and classification difference, cross-walking the Claims and NFP data with any precision and divining the distribution of those losing benefits vs those gaining employment is similarly intractable, although the NFP data do offer an indirect read on the flow dynamics evident in the Claims data.
Stay With Me Here ...
The data technicals:
- Household Survey: The reference week in the Household Survey data correspond to the week of Oct 11-17th. The reference week for September was the 6th-12th. This lines up well with the Claims data where the flow of those out of Continuing Claims into PEUC/Other extended benefits began following the week of 9/11, which marked week 26 from the onset of the pandemic related increase in Claims.
- Household Survey vs. Claims Data: The increase in those unemployed for greater than 27 weeks was 1.15mn in this morning’s data. The reported increase in PEUC Claims (individuals exhausting 26 weeks of state benefits and transitioning to extended benefits) was roughly 2 mn over the corresponding period.
That is a fairly large difference and I don’t have a convicted off-the-cuff explanation other than the obvious (structural/classification/timing differences in the surveys, prospective fraud in the Claims figures, etc).
However, the large negative delta is highly suggestive and implies that the vast majority of individuals rolling out of Continuing Claims and not transitioning to extended benefits under the PEUC program are, in fact, being reemployed and not simply losing benefits altogether.
The path out of Continuing Claims for those not transitioning to extended benefits is strictly divergent/binary with respect to the read-through for consumption capacity so a predominate flow towards re-employment is a discrete positive.
BABY STEPS ….
So, a somewhat convoluted cocktail of cross-dynamics to start 4Q as further reopening and organic improvement in the first half of the month, ongoing solidity in the goods economy and modest M/M improvement in separations contend with accelerating COVID counts through the back half, the unwind of Temporary Census hiring, acute state/local budget stress, a rising probability for renewed Services sector slowdown amidst approaching winter, PPP fund exhaustion (roughly 20% of Small Business expect to layoff/re-layoff workers following PPP fund exhaustion as of end of Oct), diminished prospects for further broad, large-scale stimulus and the impending income cliff associated with year-end expiration in pandemic related housing and extended jobless benefit support programs.
While the near-term risk continues to skew negative, for now, we continue to trudge in the direction of recovery. Baby Steps are still steps ….
… unless, of course, you’re taking those steps in Georgia and someone is tasked with counting those steps, and others are tasked with watching the people counting those steps while others are tasked with breathlessly opining about the people watching the people counting the steps and all of whom are tasked with delivering the step count to an anxious audience who - despite a fully established, clearly defined centuries old step counting definition - remain tasked with disagreeing on what constitutes a countable step.
Anyway, have a great weekend.
