Friday’s employment market report is the last to be released before the election. The decline in the headline unemployment rate, from 8.4 percent to 7.9 percent, is superficially good news for President Trump. But a deeper dive reveals underlying, structural barriers to returning to pre-pandemic levels that will bedevil whoever wins.
The good news is undeniably welcome. More than 660,000 jobs were added last month, according to the Bureau of Labor Statistics’ employer survey. The BLS’s household survey confirms this rise and furthermore shows the employment-population ratio — the share of the working-age people who hold a job — ticked up to 56.6 percent. That’s the highest rate since the pandemic struck in March, up significantly from the all-time low of 51.3 percent recorded in April.
Nevertheless, there are plenty of reasons to believe further improvements will be slow. The labor force participation rate — the share of the working-age population working or looking for work — has barely budged since June. Roughly 4.4 million people have simply stopped looking for work since February. People who aren’t looking for work aren’t counted in the headline unemployment rate. If they were, it would be significantly higher than September’s 7.9 percent.
The employer survey also shows that there are still 10.7 million fewer people employed than there were in February. These declines are concentrated in industries that are impacted by government regulations banning or limiting people from congregating indoors, such as the restaurant and leisure segment where there are 2.3 million fewer jobs than in February. Other disproportionally hard-hit segments of the economy include those associated with travel and accommodation (about 1 million fewer jobs); indoor entertainment aside from restaurants and bars (nearly 800,000 fewer jobs); and employment and other support services for businesses (roughly 950,000 lost jobs). Combined, that’s more than 5.2 million lost jobs from these sectors, or nearly half of the total hit to pre-pandemic employment levels.
Closed schools, colleges and day-care centers also contribute to the employment problem. Nearly 350,000 fewer people are employed in private educational services today than in February. An additional 750,000 people are out of work in the state and local government education sectors, and there are a further 150,000 fewer jobs in child day-care services today than in February. That’s a total of 1.25 million more lost jobs.
That impacts other economic sectors because it draws down consumer spending on the economy. People with uncertain job prospects have been cutting back on expenditures over the past few months even though generous government transfers (financed by record government borrowing) have led to an increase in personal income. The issue for many people isn’t lack of money; it’s a lack of certainty that they will continue to have enough money in the future. This fear led to a significant increase in savings when the federal government’s roughly $1,200-per-adult stimulus checks were mailed earlier this year, and spending growth is slowing despite the improving overall economic situation. Solve the uncertainty for people formerly employed in these pandemic-sensitive sectors, and employment in other sectors will surely rise as a result.
It’s hard to know how this dark picture can brighten without a safe, effective and widely available vaccine against the coronavirus. Without that, many people, especially the elderly and those with chronic illnesses, will hold back from eating out, watching a movie in a theater or taking vacations. A safe vaccine could dramatically increase parents’ willingness to send their children to school or leave them in professional day-care centers. Those are the steps that are needed to fully bring the economy back, but they are unlikely to happen soon regardless of who is elected president.
The president is mostly getting a V-shaped recovery, but the top point of the second part of the V is going to be much lower than the first part. That’s a big problem, and it’s one neither candidate can do much to solve on his own.
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