U.S. job growth slows; nearly 4 million Americans permanently unemployed

United States employment growth slowed more than expected in September 2020 and over 300,000 Americans lost their jobs permanently, dealing a potential blow to President Donald Trump ahead of the fiercely contested 2020 presidential election. The employment report underscored an urgent need for additional fiscal stimulus to aid the economy’s recovery from a recession triggered by the covid pandemic. The slowdown in hiring compounds problems for Trump, who announced overnight that he had tested positive for covid.

Just over half of the 22.2 million jobs lost during the pandemic have been recouped. Former Vice President Joe Biden, the Democratic Party nominee, blames the economic turmoil on the White House’s handling of the pandemic, which has killed more than 200,000 people and infected over 7 million in the nation. The jobs report adds to Trump’s woes. Betting odds signal a diminished chance Trump will win re-election and a much higher probability of a Democrat clean sweep.

Nonfarm payrolls increased by 661,000 jobs in September 2020, the smallest gain since the jobs recovery started in May 2020, after advancing 1.489 million in August 2020. Every sector added jobs with the exception of government, which shed 216,000 positions because of the departure of temporary workers hired for the Census and layoffs at state and local government education departments as many school districts shift to online learning. Employment in the leisure and hospitality sector increased by 318,000, accounting for nearly half of the gain in nonfarm employment.

Payrolls are 10.7 million below their pre-pandemic level.

Economists had forecast 850,000 jobs were created in September 2020. Employment growth peaked in June 2020 when payrolls jumped by a record 4.781 million jobs. The unemployment rate fell to 7.9% in September 2020 as 695,000 people left the labor force from 8.4% in August 2020. The jobless rate was again biased down by people misclassifying themselves as being employed but absent from work.

Without this error, the government estimated that the unemployment rate would have been about 8.3% in September 2020. There were 3.8 million people who had lost their jobs for good, up 345,000 from August 2020. More experienced long bouts of unemployment, with the number of people out of work for more than 27 weeks surging 781,000 to 2.4 million. The slowing labor market recovery is the strongest sign yet that the economy has shifted into lower gear heading into the fourth quarter.

Growth got a boost over the summer from fiscal stimulus. Third-quarter gross domestic product growth estimates are topping a 32% annualized rate, which would reverse a historic 31.4% pace of contraction in the April-June 2020 quarter. Growth estimates for the fourth quarter have been cut to around a 2.5% rate from above a 10% pace. The virus is in the driver’s seat in controlling the speed of the recovery and right now the economy is in the slow lane unless Congress and the White House can settle their differences and provide additional stimulus.

Stocks on Wall Street fell.

The dollar rose against a basket of currencies. United States Treasury prices were lower. The Democratic-controlled House of Representatives approved a $2.2 trillion rescue package. Objections from top Republicans are likely to doom the plan in the Senate. New covid cases are rising, with a surge expected in the fall, which could lead to some restrictions being imposed on businesses in the services sector.

Trump’s positive covid test added to political uncertainty that could extend beyond the election, and make businesses cautious about hiring. Walt Disney Co. said this week it would lay off roughly 28,000 employees in its theme parks division. American Airlines and United Airlines, two of the largest United States carriers, said they were beginning furloughs of more than 32,000 workers.

With many enduring long spells of joblessness, economists believe the unemployment rate will not see its pre-crisis level of 3.5% until mid-2024 and it could take a year to regain the lost jobs. This could further widen the income inequality gap. The covid crisis has disproportionately affected the lower-income population and women, who have dropped out of the labor force to look after children.

The labor force participation rate, or the proportion of working-age Americans who have a job or are looking for one, fell to 61.4% from 61.7% in August 2020.

The participation rate for women dropped to 55.6% from 56.1%. It may very well be the case that more home schooling is putting incremental downward pressure on the labor force participation rate, which fell meaningfully more in September 2020 for women. Though people worked more hours, a proxy for take-home wages declined on a year-on-year basis for six straight months.

The decline of take-home wages along with reduced fiscal support will temper consumer spending in the coming months.