The first Friday of every month is affectionately known in political circles as “Jobs Friday.” It’s when the Bureau of Labor Statistics releases its Employment Situation Report – a comprehensive snapshot of labor market conditions in the previous month.
These monthly reports are monitored fairly closely in a steady-state economy, but during a recession they acquire a cult-like following as lawmakers, policy staff, and market-watchers scour the data tables for any hint of turning point or noteworthy trend. Case in point: Congress is now engaged in a bitter debate over the contents of a fourth pandemic relief bill and the monthly jobs report is exerting pre-eminent influence over the fate and policy contours of controversial federal programs such as the expired $600 per week pandemic unemployment insurance benefit, more stimulus checks, new tax credits for employers, and another round of forgivable small business loans under the Paycheck Protection Program. Fortunately or unfortunately, the August report released Friday, September 4, contained a story arc for everyone, regardless of which side of the policy debate they occupy.
When viewed in isolation, the August headline statistics were very positive. According to the household survey, the topline U-3 unemployment rate dropped nearly two points, from 10.2 to 8.4 percent, the fourth straight month of decline. Moreover, the unemployment rate declined across all demographic groups which suggests a broad-based recovery is taking root. The U-6 “under-employment” rate, which accounts for those who quit looking because they are discouraged about their prospects or those working part-time but want to work full-time, also dropped significantly from 16.5 to 14.2 percent.
The establishment survey revealed that the U.S. economy added 1.4 million jobs in August. Nearly every industry category increased their headcount, with the biggest gains in industries most affected by COVID-19: retail (+249,000), leisure (+174,000), temporary help (+107,000) and health care (+90,000).
Armed with this data, it would appear that lawmakers seeking to curb or significantly reduce pandemic unemployment insurance or other income support programs have some support for their thesis. When the data is examined in broader context, however, a different picture emerges.
First, the BLS is still having problems with misclassification. Workers who are unemployed due to COVID-19 temporary layoff are supposed to be categorized as unemployed, but in some cases they are not. If allowed to adjust for this error, the BLS says the actual unemployment rate would be 0.7 points higher, or 9.1 percent.
Second, U.S. unemployment is still very high. In a normal, non-COVID era, 9.1 percent unemployment would be catastrophic. At the height of the Great Recession, for example, unemployment topped out at 10 percent (October 2009) and the U.S. economy isn’t far from that number today. Moreover, the U.S. economy lost 22 million jobs between February and May due to the coronavirus pandemic and payroll employment is still 11.5 million below the pre-COVID level. The job market is improving, but we aren’t even close to whole yet.
Third, most of the job gains in August were attributable to the re-hiring of workers temporarily laid off due to COVID-19 – a pattern consistent with prior months. In August, the number of unemployed persons fell 2.8 million and the number of persons out of work due to temporary layoff fell 2.6 million. Net? Nearly 93 percent of the new jobs in August were simply rehires.
Fourth, the August job numbers were boosted by a large increase in temporary Bureau of Census hires by the federal government (238,000) and these jobs will go away when the 2020 census process is complete. When these jobs are backed out from the August jobs report, the number of new jobs falls from 1.4 million to 1.1 million.
Last, and perhaps most important for federal lawmakers, the August report reveals that the pace of job creation has slowed markedly. In June, the U.S. economy added back 4.8 million of the 22 million in jobs lost to COVID-19, but in July and August, those figures dropped to 1.8 million and 1.4 million, respectively. That this slowdown coincides with the expiration of several of the original CARES Act counter-cyclical programs should be cause for concern.
As federal lawmakers consider whether to enact a fourth pandemic relief bill and whether to include or exclude certain policies, a more contextual approach to the economic realities, rather than a single-minded focus on the most recent snapshot, will result in the most effective policy prescription. Lawmakers need to focus on the forest, not the nearest tree.