We expect that the December employment downturn will be a one-month occurrence and that the January data, to be released Friday, will show a gain of 190,000 jobs and a decline in the unemployment rate to 6.6%.
It is almost certain that the Labor Department’s report will have a larger impact on policymakers and the debate over another round of fiscal aid than it will on market participants’ estimation of proper equity valuations or bond yields.
We expect that the January employment data will show a return to growth, with a gain of 190,000 jobs.
Given the debate over a fiscal aid and stimulus package, we think that it is critical to examine not only the top-line growth in employment but also the composition of hiring, involuntary part-time unemployment, the number of estimates of unemployment and the total number of employed relative to pre-pandemic levels.
In particular, the condition of the lower two quintiles of income earners — or those making less than $60,000 per year — is quite dire. Federal Reserve data indicate that through September, 28% of families with less than $40,000 in income had been laid off, told not to work or experienced some form of layoff. For those making between $40,000 and $100,000, that number was 19%.
The number of workers involuntarily with part-time jobs is still high
While these numbers have most likely improved over the past three months, the idea that the unemployment rate in households with less than $40,000 in income exceeds 20% is a vivid illustration of the strains caused by the pandemic and the absolute need for another round of fiscal aid.
It’s important to note that the Bureau of Labor Statistics’ establishment survey, which is used to estimate top-line growth in total employment, will be revised. We expect that the revision will result in modestly improved employment conditions.
Beneath the headline, we expect average weekly hours to hold at 34.7 and a monthly net gain in average hourly earnings of 0.3%, which would translate into a 5% year-over-year gain.
We continue to note that this is primarily a composition issue, or a function of the 10 million or so low-wage earners who are no longer at work. It is not the result of a sudden increase in wages for all American workers.
In December, outside of the 498,000-job decline in leisure and hospitality, one observed solid improvement in manufacturing hiring, outright strength in goods producing and construction hiring as well as at-trend hiring in business services.
For more information on how the coronavirus pandemic is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.
