Pace of recovery continues to slow - Capital Economics
US Economics

Pace of recovery continues to slow

US Employment Report Preview
Written by Andrew Hunter
Cancel X

We expect employment growth to have slowed further in October, with non-farm payrolls rising by 600,000 – albeit partly because of another drop-back in temporary employment as operations for the 2020 Census wound down.

We expect employment growth to have slowed further in October, with non-farm payrolls rising by 600,000 – albeit partly because of another drop-back in temporary employment as operations for the 2020 Census wound down.

The softer 661,000 rise in non-farm payrolls in September, down from 1,481,000 in August, was partly due to a 281,000 plunge in state & local government education employment, as the new school year shifted mostly online. The budget shortfalls faced by state authorities mean that a major rebound any time soon is unlikely, but that drag shouldn’t be repeated in October. That said, Federal government employment is likely to have fallen this month as field operations for the 2020 Census continued to wind down, with 99,000 temporary Census workers employed during the October survey week, down from 247,000 in September.

Employment growth in the private sector has been slowing more gradually, with private payrolls rising by 877,000 in September following a 1,022,000 rise in August, and we expect that slowdown continued in October. We aren’t too concerned by the recent levelling off in initial jobless claims at close to 800,000 per week, as that partly reflects the huge backlog of applications still being worked through by many states. But the survey evidence also points to a further slowdown. Although they remained firmly in expansionary territory, the employment indices of the Markit PMIs both fell in October.

Chart 1: Consumption Indicators (%y/y)

Sources: OpenTable, TSA, STR

The renewed wave of coronavirus cases probably began too late to have much impact on the October data, but it could weigh on employment growth over the next couple of months. The leisure and hospitality sector, where employment remains nearly 25% below its February level, is most at risk, and there are tentative signs in the high-frequency data that restaurant dining and travel are starting to level off. (See Chart 1.)

Overall, we expect non-farm payrolls to have risen by 600,000 in October. Assuming a similar gain in the household measure of employment, that would usually push the unemployment rate lower. But with the labour force having fallen by nearly 700,000 in September and still more than 4 million below its February level, there looks to be plenty of scope for a rebound. As a result, we expect the unemployment rate to have been unchanged at 7.9%.

That said, the wider evidence suggests labour market slack has not increased by as much as the unemployment rate implies, with the net share of consumers saying that jobs are hard to find now at a level normally consistent with an unemployment rate of below 6%. (See Chart 2.) In that context, although we expect a muted 0.1% m/m gain in average hourly earnings in October, pushing the annual growth rate down to 4.5%, underlying wage growth is unlikely to fall as far over the coming quarters as it did after the financial crisis.

Chart 2: Unemployment & Jobs Hard to Get Index

Source: Refinitiv

Table 1: Employment Data

Labour Market Indicators

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct1

Implication for Payroll Growth

Jobless Claims (Monthly Ave.)

2,667

5,040

2,608

1,499

1,369

993

870

788

Better

Jobless Claims (for week including the 12th)

282

4,442

2,446

1,540

1,422

1,104

866

791

Better

Challenger Job Cut Announcements (SA)

215.0

705.2

384.9

187.5

285.6

124.3

125.9

Worse

Job Openings Rate

3.8

3.7

3.9

4.2

4.6

4.4

Worse

Markit Manufacturing Employment Index

47.0

36.4

38.0

47.9

49.6

52.7

52.5

51.3

Worse

Markit Services Employment Index

47.5

35.6

37.8

49.4

51.0

55.6

55.1

53.1

Worse

ADP Private Payroll Employment Survey

-302

-19,409

3,341

4,486

216

481

749

Better

CE Estimated Change in Non-Farm Payrolls

95

-22500

-9000

5000

1000

1000

800

600

Consensus Forecast for Non-Farm Payrolls

-100

-4,250

-8,000

3,000

1,600

1,400

850

650

Actual Change in Non-Farm Payrolls

-1,373

-20,787

2,725

4,781

1,761

1,489

661

Actual Change in Private Payrolls

-1,356

-19,835

3,236

4,729

1,526

1,022

877

Consensus Forecast

Other Employment Report Data

Unemployment Rate (%)

4.4

14.7

13.3

11.1

10.2

8.4

7.9

7.9

7.7

Change in Household Employment

-2,987

-22,369

3,839

4,940

1,350

3,756

275

All Employees Hours Worked

34.1

34.2

34.7

34.6

34.6

34.6

34.7

34.7

34.7

All Employees Ave. Hourly Earnings (%m/m)

0.6

4.7

-1.1

-1.3

0.1

0.3

0.1

0.1

0.2

All Employees Ave. Hourly Earnings (%y/y)

3.4

8.0

6.6

4.9

4.6

4.6

4.7

4.5

4.5

Sources: Refinitiv, Markit, Capital Economics

1Figures in blue are forecasts

Chart 3: Actual & Estimated Change in Non-Farm Payrolls (000s)

Sources: Refinitiv, Capital Economics


Andrew Hunter, Senior US Economist, andrew.hunter@capitaleconomics.com