While the U.S. economy has rebounded and a nascent recovery is underway, the pace of workers being recalled is slowing and gains in the labor market are likely to become more difficult to come by.
Roughly 12 million of the 25 million people who have lost their jobs since the onset of the pandemic have been recalled to work,
Essentially, the first order derivative (the rate of change) of growth is positive as the economy reopens, while the second order derivative (the rate of change of the rate of change) of the recovery in the real economy and jobs is slowing.
Both of course contribute to the considerable policy uncertainty ahead given the need for a large and robust fiscal round of aid followed by stimulus to address the permanent damage to the American labor market.
After seven months of a pandemic-induced shock to the economy, roughly 12 million of the 25 million people who have lost their jobs have been recalled to work, and the data implies that more than 3.8 million of those are facing permanent job losses.
Once one includes people who have completed temporary jobs, that number leaps to 4.5 million. Yet the damage to the domestic labor market points to a large drag on actual output relative to potential, implying that the overall economy will remain impaired for some time, despite the increase of 661,000 in total employment.
The tone and tenor of the employment data tend to reaffirm the caution put forward by U.S. central bankers and point toward the need for more robust fiscal aid and eventually stimulus to embark on the long-term repair job to the domestic economy.
Given that we are about a month away from an election, it is natural that the public is focusing on the unemployment rate, which declined to 7.9% in the September report released by the Labor Department on Friday.
From our vantage point, given the large number of people who have exited the labor market, that number understates the true level of unemployment by roughly 3 percentage points. For this reason, the “real unemployment rate” is likely somewhere between 11% and 12%.
The underemployment rate stands at 12.8%. This rate includes all people marginally attached to the labor force, plus total employed part time for economic reasons. That real number of underemployed, though, is more likely closer to 15% or 16%.
Those facing involuntary unemployment remained elevated at 6.3 million relative to the long-term average of 5.4 million, which underscores the challenging economic outlook put forward by the Federal Reserve in its September Summary of Economic Projections, which implied a policy rate at zero through at least 2023. The market has priced in a zero policy rate through 2025.
While aggregate hours worked increased by 1.1%, the labor force participation rate declined to 61.4%, which is indicative of those people exiting the workforce and the slowing rate of change in the economy.
One note: The pressure on local and state balance sheets is clearly at risk of producing an increase in the number of unemployed and that dynamic is right on cue as government workers declined by 216,000. Given the combination of large corporate layoffs and the expected losses of public-sector employees, this is not a reassuring trend heading into the final three months of the year.
For more information on how the coronavirus is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.