Total nonfarm employment in America rose by 1.371 million payrolls in August, according to data out this morning from the Bureau of Labor Statistics. That was slightly worse than the consensus forecast and the June and July figures were revised lower by a net 39K payrolls. As for joblessness, the official unemployment rate (U-3) fell from 10.2 percent in July to 8.4 percent in August. That was the 4th decline in a row and much better than anticipated, but of course by itself no reason to declare “victory” since over 13 million Americans are still collecting unemployment insurance. Shifting the focus to wage growth, worker compensation is starting to return to “normal” as the Q1 pandemic distortions continue to subside. This was expected after headline hourly earnings growth appeared to skyrocket earlier this year because the job losses during the lockdowns disproportionately hit workers in lower-paid industries (those who could least afford to lose a paycheck), in turn artificially lifting average compensation metrics.
Such gauges are normalizing now as many of these laid off Americans return to work following the lifting of the lockdowns. However, as evidenced by the still alarmingly high unemployment rate not everyone has been rehired, in part because some companies are dealing with lingering occupancy restrictions, others are waiting for customer demand to fully rebound, and too many (often small) businesses simply do not exist anymore. These headwinds also help explain why initial jobless claims remain so elevated this late into the reopening, with some of what were previously temporary job losses now turning into permanent separations. Could prolonged job losses in lower-paying industries spillover into higher wage industries? In theory yes if the resulting weaker demand starts to trickle up and increase the stall risk for the broader consumer spending recovery. For now, though, this appears unlikely given the significant financial relief provided by the government throughout this crisis and presumed willingness of policymakers to provide additional support if needed. Further, hiring continues to outpace separations, and based on previous recessions any weakness in higher-paying sectors will likely have more to do with industry-specific factors, e.g. less commuting and traveling from the work-from-home push that reduces demand for energy products and air travel. A larger flare up in the pandemic of course has the potential to derail many of the positive trends mentioned above, which should serve as another reminder of why our progress in the fight against COVID-19 remains the best predictor of how the economic recovery in America will proceed.
Sources: Econoday, U.S. DoL, Wells Fargo, FRBSL