- All unemployment metrics show gains
- Private and public sector added to job growth
- Covid changed the way we work
- It’s also keeping us from a 3.9% unemployment rate
Jerome Powell breathed a sigh of relief.
After months of frustration, the stubborn unemployment number dropped.
More importantly, it dropped for the right reasons.
All good in the hood
Nearly every metric improved for the month of June.
For those who don’t know, there are actually six unemployment numbers.
Headlines report the U-3 number.
U-1 and U-2 are pretty useless.
But U-4, U-5, and U-6 help us understand the labor market in greater depth.
Here’s a quick definitional refresh:
- Civilian labor force – Employed or unemployed individuals, who are not active-duty military personnel, institutionalized individuals, agricultural workers, and federal government employees.
- Who isn’t counted? Retirees, handicapped and discouraged workers (people who stop looking for jobs).
- Marginally attached – A person eligible for employment and can work, but who is currently unemployed and has not attempted to find employment in the last four weeks.
- Discouraged workers – A person eligible for employment and can work, but who is currently unemployed and has not attempted to find employment in the last four weeks.
- This is a subset of marginally attached workers.
- Discouraged workers were not currently looking for work specifically because they believed no jobs were available for them or there were none for which they would qualify.
U-4 adds in discouraged workers to the numerator and denominator.
U-5 adds in people marginally attached to the labor force.
U-6 adds in those employed part-time for economic reasons.
Every single one of these metrics showed a marked improvement month over month. Last month we hardly saw any movement in the U-6. U-5 actually remained the same and U-4 got worse.
Positive news across the board
The numbers came in strong across all categories.
In fact, the only sector that saw a real decline was retail trade by 5,500 jobs. But that came after +60k, and +73k gains the last two months.
The biggest humps game in transport and warehousing, adding nearly 50,000 jobs along with healthcare and social assistance at 47,000.
Leisure and hospitality kept its trend strong with +380,000 jobs while Uncle Sam added +240,000 to the government’s payroll.
And the news gets even better.
- Average hours worked remained the same while average earnings increased 0.36% month over month.
- Labor force participation hit 61.7%, its highest level since the March pandemic hit, driven by a decrease in folks who dropped out of the labor force.
- Unemployment rates improved across all races and sexes.
- The number of persons on temporary layoff fell by 572,000 to 1.2 million in July.
- Long-term unemployed (those jobless for 27 weeks or more) decreased by 560,000 in July to 3.4 million but is 2.3 million higher than in February 2020. They account for 39.3% of July unemployment.
There’s an interesting study worth mentioning here.
Contention surrounded states that ended enhanced unemployment benefits early.
Analyses published by Homebase and UKG suggest that it didn’t do anything. In fact, in the states that ended the benefits, the opposite occurred.
Yet, this job’s data suggests the opposite.
Most of those states ended benefits starting in May. Since they didn’t show up in the May unemployment numbers, it was likely June would capture them.
With more people in the workforce this month, that lends credibility to their ideas.
However, without a regional breakdown, it’s impossible to say with any certainty. Plus we would need to see the trend sustained.
There are some interesting data points to the Coronavirus as well.
- 1 in 4 employed people teleworked or worked from home for pay because of the coronavirus pandemic which has declined over the last 3 months (26% in July vs 31% in June vs 35%in May).
- 1.1 million people not in the labor force in July (10.9% of unemployed) were prevented because the pandemic shut down their or curtailed their employer’s business.
- About 6.5 million people not in the labor force in July were prevented from looking for work by the pandemic (7% of those not in the labor force). May saw 9.5 million with June at 7 million.
- Note: This was reported on the BLS website. However, we could not independently verify these calculations through the tables provided.
- 1.1 million people were unemployed in July due to the pandemic.
Given the length of time many have worked from home and companies like Twitter pushing back office openings until 2022, it’s extremely likely the work from home concept becomes embedded into our culture despite a drop in telework.
The data also gives us an idea of how much slack is due to Covid. Moving 1.1M people to the employed category drops our unemployment rate by 0.7%. Same with the 1.1 million not in the labor force.
Or said differently, the pandemic is still causing job loss, but it’s not as bad.
Getting those 6.5 million people back into the labor force actually doesn’t do much since they aren’t counted as unemployed right now. It would reduce the unemployment rate by a paltry 0.22%.
Our hot take
Covid is keeping us from an unemployment rate of ~3.87%.
That’s what the math says.
And that’s kind of crazy to think about considering that it’s below historical norms.
It also makes it hard to justify the Fed’s continued easy money policy.
Because they can’t control Covid.
Not yet at least…