‘With 10 miles behind me and 10,000 more to go….’
A Review of the June Jobs Report
Market Intel / July 6, 2020
The line from James Taylor's "Sweet Baby James" came to me when looking through the June employment report. While an increase of 4.76 million jobs in the last month does move us down the road, do not lose sight of the fact we still have 14.6 million fewer private-sector jobs than we did just four months ago. And longer-term employment projections from the Congressional Budget Office, touched upon later in the article, suggest it will take nearly a decade before getting back to the February 2020 peak.
As addressed in previous Market Intel articles on the employment report, data was collected the week of June 12, before the most recent uptick in COVID-19 cases and subsequent reclosing of bars and restaurants in several states. In short, due to recent COVID-19 confirmed cases we could see several hundred thousand of these jobs vanish over the subsequent few weeks.
The growth in employment was so massive, there were even very few employment subcategories that showed a decline from last month's levels. Among the few that did are support activities for mining, which dropped 7,300 positions, and the air and rail transport sectors, which both shed a few thousand slots. Computer systems design was down 20,000 jobs, but that’s only a 5% decline from the February peak. Travel agents continue to lose jobs, down another 7,000 positions. There are now 27% fewer travel arrangement positions than there were in February. Nursing homes slipped 20,000 jobs, but like the computer systems design sector, they’re only down 5% from the earlier peak.
State employment was also down. With state revenue streams under extreme pressure, cutbacks will continue. Local government employment rose, but only due to significant seasonal hiring in education.
A few sectors hit particularly hard in this downturn are worthy of a deeper dive. Examples include leisure and hospitality (restaurants, bars, theme parks, movie theaters, cruise lines, etc.) retail shops and ambulatory health care (dentists, doctor's offices, etc.). Let us pay particular attention to food service and bars, department stores and dentists.
Leisure and hospitality is the largest employment category of all, accounting for 11% of all jobs. Closing restaurants, bars, theme parks, etc. automatically boosted unemployment numbers by millions. Reopening these facilities not only gives you somewhere to go – with or without masks – but also employs millions. Within that broader category are food service and drinking establishments. Like other sectors, this sector’s employment numbers peaked in February, when they hit 12.3 million – 9% of total private sector employment. In the April report, food service and drinking establishment job numbers collapsed to only 6.2 million. Last month's report put 1.4 million jobs back in the category – over half of the overall job gains. This month the group picked up another 1.5 million jobs, 31% of overall gains. Food service and drinking establishments are now back to within 25% of the February peak. That is still another 3.1 million jobs, but until food service and bars fully reopen and consumers return, how many more months of million-plus job gains are likely?
For the retail shop sector, let us look at clothing and clothing accessory stores. This category has been declining a bit over the past year, but in February 1.3 million people were employed in the sector. In April, the number was down to only 492,000 – a drop of 61%. One almost wonders where these people worked with mall closures and all other “nonessential” businesses locked up. The June report boosted this figure to 767,000, still a long way from February's total, but a significant bump from April.
The last subcategory for closer examination is dentists' offices. The suspension of elective surgeries shut these businesses down as tightly as bars. The numbers reflected that action with employment going from 977,000 in February to only 427,000 in April in this subcategory. A trip to the dentist now is different than the pre-pandemic experience, but we are back up to 866,000 jobs in these offices, according to the June report.
We did a deeper dive into these three subcategories for a couple of reasons. First, the food service/beverage establishment category is very large, and as such is overwhelming the headline numbers. But one wonders how much longer we can obtain million-plus job gains in this sector alone. With restaurants operating at 50-75% of capacity, how many more employees do you need? How many of these establishments that were around in February are just not going to come back? Is that the equivalent of a million staff, 2 million?
The second reason turns to the other two subsectors – clothing stores and dentists’ offices. Yes, they have a way to go before returning to February levels – if they ever do – but in some sectors, at least we are approaching an asymptote. We have had significant gains and now will begin to claw back additional slots at a much slower rate.
We may talk about another month or two of multi-million job gains – in these three categories combined. But returning to a lockdown because of a spike in COVID-19 cases and hospitalizations and again closing bars and food service could well stop this trajectory.
In looking at the months ahead, or even the years, most of us focus on economic progress – or lack thereof. As part of its federal budget scorekeeping responsibilities, multiple times a year, the CBO regularly looks out over the next 10 years to develop long-term outlooks. Their June projections were noticeably different from those they put together in January. From a jobs standpoint, one line stood out above all others: “The unemployment rate remains above its pre-pandemic level through the end of the projection period.”
With that not-so-high note to close on, another song lyric comes to mind, this one from the Boss, Bruce Springsteen – “Foreman says these jobs are going boys and they ain’t comin’ back.”