By Reuters
US job growth likely slowed further in August as financial assistance
from the government ran out, threatening the economy’s recovery from the
COVID-19 recession.
The Labor Department’s closely watched employment report on Friday would
come as companies
from transportation to manufacturing industries
announce layoffs or furloughs. It could add pressure on the White House
and Congress to restart stalled negotiations for another fiscal package,
and will likely become political ammunition for both Democrats and
Republicans with just two months to go until the presidential election.
Programs to help businesses pay wages have either lapsed or are on the
verge of ending. A $600 weekly unemployment supplement expired in July.
Economists credited government largesse for the sharp rebound in
economic activity after it nearly ground to a halt following the
shuttering of businesses in mid-March to control the spread of the
coronavirus.
“The pandemic has really torn our economic and social fabric,” said Sung
Won Sohn, a finance and economics professor at Loyola Marymount
University in Los Angeles. “The ending of the fiscal stimulus has not
helped the situation.”
According to a Reuters survey of economists nonfarm payrolls likely rose
by 1.4 million jobs last month, with some of the anticipated gains
coming from hiring for the 2020 Census. Employment increased 1.763
million in July and its growth peaked at 4.791 million in June.
Friday’s report is one of just two monthly labor market scorecards left on the calendar before the Nov. 3 presidential election.
President Donald Trump, who is trailing in polls behind former Vice
President Joe Biden, the Democratic Party nominee, is likely to tout the
continued job gains as a sign that the economy is improving after
suffering its biggest shock in at least 73 years in the second quarter.
But employment would still be about 11.5 million below its pre-pandemic
level. Most of the job gains have been workers being recalled from
furloughs or temporary layoffs. Though new COVID-19 infections have
subsided after a broad resurgence through the summer, many hot spots
remain.
United Airlines said on Wednesday it was preparing to furlough 16,370
workers on Oct. 1. American Airlines has announced its workforce would
shrink by 40,000, including 19,000 involuntary cuts. Ford Motor said it
was targeting 1,400 U.S. salaried jobs for elimination by year end. Mass
transit rail operators are also eying furloughs.
A report this week from the Federal Reserve based on information
collected from the U.S. central bank’s contacts on or before Aug. 24
showed an increase in employment. The Fed, however, noted that “some
districts also reported slowing job growth and increased hiring
volatility, particularly in service industries, with rising instances of
furloughed workers being laid off permanently as demand remained soft.”
“Restaurants and other businesses in the services industry are not going
to continue calling workers back when demand is not there,” said Ryan
Sweet, a senior economist at Moody’s Analytics in Westchester,
Pennsylvania. “We need the stimulus like weeks ago.”
Spending in jeopardy
The unemployment rate is forecast to have dropped to 9.8 per cent in
August from 10.2 per cent in July, according to the Reuters survey. That
would leave it just under the 10 per cent peak shortly after the end of
the 2007-09 Great Recession.
But the measurement of the jobless rate has been biased downward by
people misclassifying themselves as being “employed but absent from
work.” At least 29.2 million were receiving unemployment benefits in
mid-August.
Lydia Boussour, a senior economist with Oxford Economics in New York,
estimated that payroll gains in line with expectations would leave one
out of two laid-off workers still unemployed, with an increased risk of a
prolonged high unemployment spell.
“The fact that the employment is settling into a trend of slow, grinding
improvement is a worrisome sign for the broader recovery,” said
Boussour. “The combination of slow employment progress and poor health
conditions along with the absence of fiscal aid risk jeopardizing the
consumer spending rebound in the coming months.”
Slowing job growth
will likely have a limited impact on gross domestic product in the
third quarter, which economists estimate could rebound at an annualized
rate of as high as 30 per cent after sinking at a historic 31.7 per
cent pace in the April-June quarter. But it will hurt fourth quarter
GDP, with consumer spending taking a hit.
Though wages surged at the depth of the pandemic, that was because the
job losses were concentrated in the low wage services industries like
restaurants and bars.
Average hourly earnings are forecast unchanged in August after rising
0.2 per cent in July. That would lower the annual increase in wage to
4.5 per cent from 4.8 per cent in July.
The service sector is likely to account for most the anticipated gains
in August. Manufacturing is expected to have added another 50,000 jobs.
Government payrolls were likely boosted by the hiring of at least
250,000 workers for the population count, though some it could be offset
a decline in education employment at states and local governments.
“We look for education-related employment to be particularly weak as
the back-to-school season will be abnormal in many areas,” said Daniel
Silver, economist at JPMorgan in New York.
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