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November 6, 2020 Blog 2 min read
The continuing improvement in labor market conditions is unambiguous, but so is the slowing pace of job creation. The wild card in the outlook is the risk presented by the resurgence in COVID-19.

11.6.20 Employment Situation ChartThe nation’s jobless rate declined much more than expected in October, falling a full percentage point to 6.9%.

Employers added 638,000 new jobs in October, moderately above expectations for 600,000. Revisions to prior months added another 15,000 to the tally. Payrolls have now risen for five consecutive months after an unprecedented, precipitous drop when parts of the economy virtually shut down in a matter of days last spring. October’s payroll numbers are certainly strong by historical standards, but new job growth has continued to slow considerably over the past few months, with the October gain being less than half the pace in September.

The jobs report largely validates what has been otherwise apparent about the state of the economy — the rebound since the low point earlier this year continues, but the pace of improvement continues to slow as is to be expected. While the timing and magnitude of recovery varies in every cycle, after that initial burst off the bottom, the economy typically transitions to a period of above-trend growth for some time. That’s what we’re seeing in the data in recent months.

Although the pace of progress has slowed, there’s still good news in the household survey portion of the report. The number of unemployed Americans declined by about 1.5 million, even as over 700,000 individuals returned to the workforce, and the number of employed individuals rose by over 2.2 million last month.

Job gains were widespread by industry, but most pronounced in leisure and hospitality (+271,000) and professional and business services (+208,000), which includes about 109,000 workers in the temporary help sector. Gains continue to accelerate in construction, with 84,000 workers added to support the recent boom in housing. Supported by extremely low mortgage interest rates and pent-up demand, the housing sector has been a relative bright spot for the economy in recent months. Manufacturers added 38,000 to their payrolls, consistent with the October ISM manufacturing report a few days ago, which indicated that more businesses were adding to payrolls than trimming them for the first time in over a year.

Despite the significant progress in the labor market, there is a long way to go, with over 10 million jobs missing since the February peak before the pandemic broad-sided the U.S. economy.

The election may be front and center in terms of attention, but the surge in COVID-19 cases presents the greatest risk to the near-term outlook for the economy. With much of Europe recently announcing lockdowns, the question is what steps will the United States take to attempt to curtail its spread. Any actions are likely to be a headwind to the nascent recovery, likely necessitating some degree of additional fiscal support for households, businesses, healthcare providers, and state and local governments. With the focus in Washington squarely on the election for now, little if anything is likely to be accomplished on that front in the near future. Still, there’s a broad expectation that a fiscal package will ultimately be passed, with the primary uncertainty surrounding its size and scope.

The bottom line is positive, but cautionary. The recovery remains on track and the still-lofty ranks of the unemployed continues to decline. But let’s not forget, the resurgence in COVID-19 cases and the potential for restrictions to be reinstated to address that risk present a potential headwind to the jobs recovery and the economy in the coming months.

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