- KPB & Co Research
As the global economy re-opens, the number of people employed in the USA continues to increase, leading to a gradual reduction in the unemployment rate. The growth in employment thus far appears to be evenly distributed across most sectors except for retail, education and health services, and professional and business services. The pace and shape of the economic recovery post-COVID-19 depend, to a large extent, on whether people are able to permanently return to their jobs. There is some concern that a significant proportion of the unemployed will become permanently unemployed as the government wage subsidy programmes draw to a close.
Data from the US Bureau of Labor Statistics show that the overall level of nonfarm payroll employment grew by 4.8 million in June 2020, relative to May 2020. In May 2020, employment levels grew by approximately 2.7 million over April 2020. The growth in nonfarm payrolls pushed the unemployment rate lower to 11.1 percent coming from 13.3 percent in the previous month, and the labor force participation to 61.5 percent coming from 60.8 percent. General labour conditions have been improving, with the partial re-start of economic activity that began in May 2020, and is expected to continue improving as more sections of the economy are re-opened.
The growth in nonfarm payrolls is coming from all sectors of the economy with some sectors moving a lot faster than others. The sectoral distribution of employment growth are as follows:
- Leisure and hospitality: Up 2.1 million due to, food services and drinking (1.5 million), amusements, gambling, and recreation (353k), and accommodation industry(239k). This sector is still down 3.1 million since February.
- Retail trade: Up 740k comprising mainly clothing and clothing accessories stores (202k), general merchandise stores (108k), furniture and home furnishings stores (84k), and motor vehicle and parts dealers (84k). The sector is still down 1.3 million since February.
- Education and health services: Up 586k comprising mainly offices of dentists (190k), offices of physicians (80k), other health practitioners (48k), nursing care facilities (-18k), social assistance (117k), child daycare services (80k), individual and family services (28k), and private education rose (93k). The sector is still down by 1.8 million since February.
- Other services: Up 357k consisting mostly of personal and laundry services (264k). This sector is still down 752K since February.
- Manufacturing: Up 356k on the back of motor vehicles and parts (196k), miscellaneous durable goods manufacturing (26k), and machinery (18k). This sector is still down 757k since February.
- Professional and business services: Up 306k owing to temporary help services (149k), services to buildings and dwellings (53k), and accounting and bookkeeping services (+18k). This sector is still behind by 1.8 million relative to February.
- Construction: Up by 158k due to specialty trade contractors (135k) and construction of buildings (32k).
- Transportation and warehousing: Up 99k as a result of gains in warehousing and storage (61k), couriers and messengers (21k), truck transportation (8k), and support activities for transportation (7k). Still down significantly relative February.
- Wholesale trade: Up 68k due to durable goods (39k) and nondurable goods (+27k). Still down 317k relative to February.
- Financial services: Up 32k on account of real estate (18k). Still down 237k since February.
- Government: Up (+33k), due to gains in local government education (+70k). The segment is still 1.5 million below its February level.
- Mining continued to lose jobs (-10k).
In spite of the growth seen in the number of employed people, the economy still has a long way to go before full recovery in employment occurs. As of June 2020, the number of nonfarm payrolls is still approximately 14.7 million less than what it was before the spread of COVID-19 in February 2020. While there has been an acceleration in the growth of the number of employed, there could be headwinds in the months ahead as a number of states had to go back into lockdown mode as the virus began to re-emerge.
The USA still has a long way to go before employment levels return to normalcy. The International Monetary Fund (IMF), in their most recent economic outlook, put a full recovery somewhere in late 2021 to early 2022. At this moment, a lot of the economic stability we see is due primarily to the US Federal Reserves pumping an unprecedented amount of liquidity into the financial system through a range of policy measures (reductions to interest rates, corporate and government bond--buying, and financial sector liquidity support). The central government has also been providing wage support and household transfer payments. While these measures are good in the short term, in the near to medium term there will likely be a substantial risk to the economy as this support is withdrawn, similar to what we saw in late 2018. In addition, there are early signs that a full-scale opening of the economy may be some distance out in the future as the risk of a second wave of COVID-19 is a high possibility.