Friday 3rd July 2020
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U.S. businesses added 4.8 million workers in June, evidence that rehiring continued as the economy reopened and businesses brought back staff. A normal labor market, though, is still a long way off.
The Labor Department said Thursday that the unemployment rate fell to 11.1% last month from 13.3% in May. The rise in payrolls and decline in the unemployment rate were much better than expected; economists surveyed by FactSet anticipated an increase of 3.1 million in nonfarm payrolls and an unemployment rate of 12.5%.
Investors cheered the better-than-expected jobs numbers. Stock futures climbed immediately after the report, and major indexes opened higher. The S&P 500 gained 1.4%, and the Dow Jones Industrial Average rose 1.6% shortly after the regular session opened.
When you dig into the report, several pieces show strength. The participation rate jumped 0.7% as more people who were laid off during lockdowns began searching for work in June. A rise in participation puts upward pressure on the unemployment rate, which still fell despite the rise in participation. At the same time, the number of part-time workers who would rather be employed full time fell, now down 17% from April.
But the June jobs report isn’t all good news and continues to show just how far from normal the labor market and overall U.S. economy are. Although unemployment fell in May and June, the jobless rate and the number of unemployed are up by 7.6 percentage points and 12.0 million, respectively, since February. The number of permanent job losers continued to rise last month, climbing by 588,000 to 2.9 million, and while the number of those employed part time for economic reasons fell, it’s still more than double its February level. The U-6 unemployment rate, a broader measure that captures marginally attached and underemployed individuals, fell in June but is still at 18%.
Gregory Daco, chief U.S. economist at Oxford Economics, says investors should look past the June jobs numbers, which were compiled before many states and companies rolled back reopening plans as Covid-19 cases started to surge in Texas, Florida, Arizona and elsewhere.
“Beneath the appealing look, the labor market is still facing a net loss of 14.7 million jobs from the Global Coronavirus Recession” he says, and gross flows show a labor market that is still bleeding jobs. A separate report from the Labor Department Thursday showed initial claims for unemployment insurance were still an elevated 2.3 million last week.
That’s as the number of people continuing to claim unemployment insurance rose slightly in the most recent period. Layoffs happening now, it seems, have a higher risk of being permanent than those that happened when many businesses were forced to close in March and April.
As the areas hit hardest by the pandemic continued to make up the bulk of rehiring—leisure and hospitality payrolls rose 2.1 million while retail payrolls increased 740,000—these low-paying jobs dragged down average hourly earnings by 1.2% from May. Economists expected a much smaller decline in wages of 0.5%.
While the labor market recovery has so far surpassed expectations, it has only recouped three out of every 10 jobs lost, Daco says. With the July 31 expiration of enhanced unemployment benefits looming, he says policy makers shouldn’t read the back-to-back record payroll reports as “mission accomplished,” especially given the rising Covid-19 infections in many states.
Other economists agree. Though the back-to-back gains are encouraging, the June level of payrolls is still 14.7 million below February, notes Rubeela Farooqi, chief U.S. economist at High Frequency Economics. “Combined with a staggeringly high unemployment rate, the message remains one of ongoing strains in the labor market for now,” she says.
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