On Friday (2 July), the Bureau of Labour Statistics (BLS) released US June employment data and below we highlight the main points coming out of Friday’s data release.
- 850k jobs were added in June, predominantly in the following industries:
- Bars and Restaurants (210k).
- Accommodation (75k).
- Arts and Entertainment (75k).
- Government services (188k).
- Retail (108k).
- The numbers were broadly in line with consensus expectations (720k), although perhaps with a higher contribution from government services than most would have liked and a slightly slower pace of employment in Leisure and Hospitality than expected.
- Despite adding jobs, the unemployment rate went up (from 5.8% to 5.9%) largely, it seems, because of the number of people who are working part time for economic reasons (i.e., those that would like to work full time but cannot because their employer’s business is operating below capacity), dropping by c. 700k, which is not taken into consideration in the “jobs added” calculation.
- On balance it seems that c. 700k people shifted from being employed part-time to full-time but there was not much in the way of net new jobs – a slightly disappointing result relative to expectations.
We have used the opportunity of this latest data release to delve slightly deeper into how the US labour market has evolved over the course of the pandemic.
Executive summary
- The extent of US job losses at the start of the COVID-19 pandemic (when 25mn jobs were lost in just two months) was unprecedent in terms of the quantum and the pace. By comparison c. 8mn US jobs were lost over the course of c. 18 months during the global financial crisis (GFC) in 2008/2009.
- The extent and pace of the employment recovery is also unprecedented, with the US having recovered c. 18mn of those jobs since April last year. By comparison, in the wake of the GFC, it took over 4 years to recover the 8mn lost jobs.
- The headline unemployment data (5.9%) seem to show that the US is getting close to its pre-pandemic employment levels (at a 3.5% unemployment rate), but a look below the surface suggest that, if you include the c. 4.5mn workers who have not yet been enticed back into the labour market after leaving their jobs during the pandemic, the comparable unemployment rate is much closer to 8.4%.
- Comparing current employment to pre-pandemic levels, it is clear that some sectors are still operating at a significantly reduced level (at least when measured by the number of employees). The majority (38%) of the reduced capacity is in the Leisure and Hospitality sectors, which are operating at c. 87% of pre-pandemic levels. However, there are also several other major sectors still operating well below pre-pandemic levels, including:
- Clothing retail (-18%).
- Nursing and Frail Care Centres (-11%).
- Childcare (-11%).
Conclusion
The recent employment data for June (850k jobs added) show the employment recovery is still well on track, but the headline numbers are giving a misleading picture of the tightness of the US labour market. Like with other parts of the economy it seems more like the recent wage pressure (average hourly earnings were up 3.6% in June) is more a function of temporary supply bottlenecks, which we expect to dissipate over the coming months.
Detail
Going into the pandemic there were c. 160mn people employed in the US. – c.25mn people lost their jobs in the space of two months at the start of the pandemic of which 18mn jobs have now been recovered (net).
Figure 1: The quantum and extent of US job losses (and recoveries) at the start of the pandemic was unprecedented
Source: Bloomberg, Anchor
Figure 2: During the GFC 8mn jobs were lost over 18 months which took over 4 years to recover
Source: Bloomberg, Anchor
The latest unemployment data suggest that only 5.9% of Americans are unemployed and those following the latest numbers closely will have seen that, despite adding 850k jobs in June, the unemployment rate actually went up (from 5.8% to 5.9%). This quirk is a function of how the US labour force is calculated, which only takes the following into consideration:
- People with jobs.
- People actively searching for jobs in the previous 4 weeks.
This generally accounts for c. 60% of the working age population in the US (anyone between the ages of 16 and 74), but the numbers fluctuate due to several members of the working age population who drift in and out of actively searching for work. There are also some other quirks in the way the calculations account for people working part time that might distort the overall unemployment level. We find it best to focus on the number of people with jobs relative to the previous period to get an idea of what is happening in the US labour market.
Figure 3: Quirks in the way the US BLS calculates who is considered to be in the labour force can skew the unemployment rate so rather focus on the trends in the number of people with jobs
Source: BLS, Anchor, Bloomberg
Looking at employment trends on an industry level (Figure 4), it shows that the bulk of the challenges are still in the Leisure and Hospitality sectors (c. 37% of “missing jobs”), but that other areas such as clothing retail and those caring for children and the elderly are still operating at significantly reduced capacity, at least when measured on the number of employees.
Figure 4: At an industry level, the Leisure and Hospitality sectors are still responsible for the bulk of jobs “missing” relative to pre-pandemic levels
Source: BLS, Anchor
