As Covid-19 cases continue to rise, employment gains in the US continue to slow. The upcoming employment report for November estimates between 200K-610K new jobs created with the official number being announced tomorrow.
Under normal conditions, a consensus of 500K new jobs would be a great sign for the economy, but given the context, it is important to consider some other metrics when analyzing this report.
First, the current unemployment rate sits at 6.9%, a high but not unheard-of value and certainly better than the 14% rate seen in April. A key question to ask with regard to the unemployment rate is why the number is falling. There are two major contributors to the unemployment rate decrease: the number of workers being hired and the participation rate of the nation.
As more people search for work, the participation rate increases which can cause the unemployment rate to rise if they are unsuccessful in securing employment. The participation rate has been declining through 2020 which has played a part in the overall unemployment rate decline during the same timeframe.
As an example, in February the participation rate was 63.4% – a healthy number for a healthy economy. By April, the rate had dropped to 60.2% and has since recovered to 61.4% in September. Although these are just a few percentage points, these numbers represent millions of Americans who have given up the job hunt and are no longer being tallied in unemployment rate calculations. In October alone, the number of jobseekers fell by 539K.
Therefore, when we hear that the unemployment rate has dropped yet again, it is important to remember there are over 6 million people who are no longer actively searching for employment and as a result are no longer counted.
Another key consideration is how this job report correlates with the current economy’s big picture. Assuming the consensus estimate is correct and 500K new jobs were indeed added in November, the economy would still have a deficit of roughly 5 million jobs in 2020.
While 500K new hires in November would be encouraging, it would still leave the country with nearly double the number of unemployment versus the beginning of the year with millions more exiting the workforce entirely.
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