Chief Economist Scott Brown discusses current economic conditions.
The October Employment Report – Recent data reports have been consistent with a further rebound in economic activity, but we still have a long way to get back to where we were before the pandemic and the pace of improvement has moderated. While attention has been focused on the election and the implications for fiscal policy, the daily number of COVID-19 cases has surged. There is a tradeoff between economic growth and fighting the virus.
Nonfarm payrolls rose by 638,000 in the initial estimate for October, held back by the loss of 114,000 temporary census workers and by a smaller (unadjusted) gain in education jobs. Normally that kind of headline job growth would be outstanding, but the October gain still leaves us down more than 10 million jobs from February. Private-sector job growth was broad-based last month (up 906,000 overall), with strength in construction (+84,000), manufacturing (+38,000), and retail (+103,700) – although each was lower than in February. Leisure and hospitality bounced back further (up 271,000 in October, mostly in restaurants), but was still down 20.7% from a year ago. A few sectors have exceed pre-pandemic employment, such as grocery stores, home improvement stores, online shopping, and delivery services, but these are very small gains relative to the overall job market.
The unemployment rate fell to 6.9% (from 7.9%), higher for blacks (10.8%) and Hispanics (8.8%). The employment/population ratio rose to 57.4% (from 56.6%) – it was 61.1% in February. Average hourly earnings advanced 0.1% (+4.5% y/y), but that reflects compositional changes (faster job growth in lower-paying industries more recently, larger job losses in lower-paying industries relative to a year ago).
Growth has been stronger than was expected earlier, largely because state and local economies have opened up more than anticipated. While government directives have relaxed, so has vigilance against the virus. No surprise, the number of COVID-19 cases has surged in the last few weeks (the number of cases largely reflects behavior that occurred two weeks prior). The rise in cases has been more pronounced in areas that had dodged the virus earlier, particularly in rural areas, which are now struggling to deal with the fallout.
It still seems unlikely that we will see the kind of severe lockdowns that occurred in March and April, although some areas may require that. Most individuals would respond by being more careful, using greater vigilance, and avoiding large crowds, but some won’t – and the virus will continue to spread.
The economy should continue to recover, but the pace will still depend on the virus and efforts to contain it.
Financial market participants view divided government favorable, but Washington will have to work together to accomplish things. Responding to a pandemic ought to be something where the two sides can come together.