Total nonfarm employment in America rose by 1.8 million payrolls in July, according to data out this morning from the Bureau of Labor Statistics. That was better than the 1.7 million gain analysts anticipated, and the June and May figures were revised higher by a net 17,000 payrolls. As for joblessness, the official unemployment rate (U-3) slid from June’s 11.1 percent reading to 10.2 percent last month. That was the 3rd decline in a row and the lowest reading since March, but of course by itself no reason to declare “victory” since over 16 million Americans are still collecting unemployment insurance (nearly double this if Pandemic Unemployment Assistance is included), and we continue to see more than a million new benefits recipients being added each week. The “second wave” of the coronavirus that caused some states to pause or even reverse aspects of their reopenings is one of the key reasons why the labor market recovery has lost a bit of momentum recently, but as long as another wide-scale lockdown like we saw in March and April does not occur then it is unlikely the economic rebound will be derailed.
Further, there has been tremendous pressure on many governors to avoid anything beyond re-imposing a few localized restrictions, and fortunately some of their policy decisions might have become a bit easier given that the growth rates in positive cases and hospitalizations appear to have peaked in some of the “hot spot” states. If these encouraging developments follow the same pattern from the April peak in cases, deaths will continue to decline in the coming weeks as well, and subsequent job reports could therefore start to reflect a reacceleration in the economic recovery. Beyond total employment another labor market component to watch going forward will be compensation. Indeed, the monthly average hourly earnings figures released by the Labor Department have provided more noise than signal lately due to the composition of job losses during the crisis, i.e. predominately lower-paid workers being let go. Moreover, Americans with a higher level of educational attainment were significantly more likely to be able to continue working throughout the pandemic (see above), especially in “non-essential” occupations that can be performed remotely (see below).
A better gauge of recent compensation trends may therefore be the Employment Cost Index from the Bureau of Labor Statistics, which looks at how companies are adjusting pay for a particular job while holding constant the industry and occupational categories. The latest update released last week showed that overall wage and salary costs rose 0.4 percent for private sector workers in the second quarter of 2020. That was the smallest increase in half a decade but still an increase, in turn suggesting that outright pay cuts have not become as widespread or as severe as many economists had feared. Continued talent shortages may be playing a role here, and a recent Federal Reserve study found that among those businesses that have made compensation adjustments, the most common approach was to only “cut nominal wages for about 10 percent of continuing employees while forgoing regularly scheduled wage increases for others.”
Sources: Econoday, U.S. DoL, Wells Fargo, FRBSL