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Payrolls grew by 661,000 last month, well below expectations, and the jobless rate ticked down to 7.9 percent, driven not by job gains, but by people leaving the labor force. Long-term unemployment spiked sharply–in fact, its largest one-month spike on record–and shifts continue from temporary to permanent job losses. In other words, though the labor market continues to improve, it is doing so at a slower pace, and the risk of increasing numbers of job seekers stuck in long-term joblessness is rising.
Payrolls continue to climb back as commerce gradually recovers, but the pace of gains has slowed, as shown in the figure below. Private sector gains last month were stronger, at 877,000, as local education jobs fell sharply, by 231,000. At least part of that loss is due to the impact of Covid on decline job opportunities for bus drivers, school cafeteria workers, and janitors due to much less in-person teaching.
Importantly, this deceleration in job gains (see figure) is consistent with the absence of two absolutely essential policies from the federal government: virus control and fiscal stimulus. The former was never taken seriously by the Trump administration, at tremendous cost to the lives, health, and living standards of millions of Americans. The latter–stimulus–was initially implemented with real urgency, but the fact that such urgency has demonstrably faded is evident in today's report.
Source: BLS
No labor market indicators have regained their pre-crisis peak, as shown in the figure below. It shows the percent of losses regained since payrolls started growing and unemployment started falling. For example, the unemployment rate initially rose from 3.5 percent in February to 14.7 percent in April, an increase of 11.2 percentage points. Since then, it has declined to 7.9 percent in September, meaning it filled up 6.8 points of the 11.2 point hole, or 61 percent.
The first point from the table is that all bars are well below 100 percent. Sizable holes still persist and while it has clearly improved, the job market is still operating with recessionary levels of slack. Blacks in particular reveal lagging progress. The recovery of both their unemployment and employment-to-population rates (EPOPs) are lagging behind the others. This is a serious concern which appears to confirm the strong cyclical component of Black labor market outcomes, meaning they benefit disproportionately from strong labor demand and, in the current situation, take more of the brunt of weaker labor demand.
Other signs of decelerating job opportunities include the increase in permanent, versus temporary, job losers (meaning laid-off workers who should not expect to be called back to work as commerce reopens) and the related spike in long-term unemployment, i.e., those seeking work for at least six months. Back in May, when more jobless workers still thought they were temporarily furloughed, permanent layoffs were only 14 percent of the unemployment. In September, that share was 36 percent.
The 781,000 spike in long-term unemployment in September was historically notable: it is the largest one-month increase in this indicator on record, with data starting in 1948 (note: this record holds as a share of unemployment as well, which spike up from 12 to 19 percent). The risk here is what economists call "hysteresis:" the phenomenon of a group of potential workers relegated to the labor market's sidelines for long periods. Should their skills or even just their basic labor-market attachment fade due to long periods of joblessness, they risk a lasting disconnection from work and wages at great cost to themselves, their families, and the greater economy.
Though it is too early to tell whether these early indicators will morph into a longer-term trend, my work in this area suggests that Black, immigrant, and low-income workers are particularly vulnerable to this outcome. Certainly, the bars for Blacks in the figure above are suggestive of that result, but it is one I will be carefully tracking in coming weeks and months.
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