Total nonfarm employment in America rose by 661,000 payrolls in September, according to data out this morning from the Bureau of Labor Statistics. That was worse than the consensus forecast but the July and August figures were revised higher by a net 145K payrolls. Much of the headline miss can be attributed to local government education employment, which fell by 231K payrolls as many schools across the country have yet to reopen. As for joblessness, the official unemployment rate (U-3) fell from 8.4 percent in August to 7.9 percent in September. That was the 5th monthly decline in a row and better than anticipated. Some of the improvement in the jobless rate likely continued to result from the expiration of the $600 per week unemployment insurance (UI) bonus implemented under the initial CARES Act. In fact, continuing claims, i.e. Americans collecting weekly jobless benefits for longer than a week, has fallen by 26.9 percent since the end of July, a faster rate of decline than what occurred in the eight weeks leading up to the expiration of the $600 emergency benefit (although benefits exhaustion is likely a factor as well). Congress is still negotiating whether to reinstate the UI boost, even if just partially. There are several likely explanations for why the sudden removal of the weekly UI supplement has yet to provide any meaningful hit to consumer spending.
For example, the jobless rate had already fallen sharply by August, and the vast majority of Americans throughout this crisis have remained employed. Add to this the $1200 relief payments and the earlier spike in the personal savings rate and it is likely that many people currently have a better financial cushion in place than they did prior to the coronavirus outbreak. As for the millions of Americans still unable to find a job, additional and often underappreciated support has come from other CARES Act provisions that remain in effect, such as the Pandemic Unemployment Assistance (PUA) program that allows workers who usually would not qualify for unemployment benefits, such as the self-employed and gig workers, to now collect jobless benefits. Help also comes from the Pandemic Emergency Unemployment Compensation (PEUC) program, which continues to provide jobless benefits to individuals even after they have exhausted their regular UI allowance. So although the generous $600 emergency UI boost has gone away, expanded access to normal jobless benefits remains in place. These two programs are set to expire at the end of 2020, so there is still time for Congress to consider an extension or modification. A recent Wells Fargo analysis estimated that if these programs were allowed to phase out at the end of the year then the economic recovery, ceteris paribus, would likely be slowed but not completely derailed. Last month’s price action in the stock market, though, may suggest that investors would prefer to have the extra fiscal support and not need it than need it and not have it. Perhaps more importantly we must also not forget that another significant flare up in the pandemic still has the potential to reverse 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, AEI, Twitter, Wells Fargo, FRBSL