The US labor market is exiting the summer with much less momentum then when it entered with only a 235k advance in August
▶️Only 1/3 of 3-month trailing average of 750k
▶️Well short of our under-consensus 675k call
The breadth of job gains in the private sector cooled visibly in August with 62% of industries growing, from 69% in July
Which sectors cooled?
The Covid sensitive ones and the ones experiencing lingering supply-side constraints, but the weakness was concentrated in the leisure and hospitality sector (flat for the month -- no blue bar below)
🇺🇸Looking ahead, the key challenge is to get the "face-to-face" sectors back to pre-#Covid levels.
Via:
▶️a strong and sustainable health recovery ⚠️⚠️
▶️reestablishing childcare
▶️ensure proper work incentives (wages)
🇺🇸US labor market: The final leg of a marathon is the most difficult
The US economy is 76% of the way back to pre-pandemic employment levels with a shortfall of 5.3 million #jobs, but the shortfall relative to the pre-virus trend is close to 9 million jobs!
The progress we've made since the trough of the #Covid crisis is impressive, but the lingering #jobs shortfall is very large compared with prior recessions, and the road to a full #labor market recovery will take time
The household survey contained more encouraging news
🟢#Unemployment rate -0.2ppt to 5.2%: lowest post-pandemic
🟢U-6 under-employment rate -0.4ppt to 9.2%: very encouraging as it reflected fewer marginally attached workers (mostly fewer discouraged workers)
With the "part-time for economic reasons" workers nearly back to pre-Covid levels, the focus will turn to "permanent layoffs" and those "not in the labor force but wanting a job"
The labor force participation rate remained steady at 61.7% – reflecting persistent labor supply constraints.
It's been moving sideways for a year now, reflecting the multiple labor supply constraints including virus, unemployment benefits, childcare issues & early retirements
The employment to population ratio rose 0.1ppt to 58.5%
🇺🇸Age-adjusted labor force participation rate continues to rise, but remains well short of its pre-pandemic level
🇺🇸The decline in the share of long-term unemployment remains in place -- another encouraging sign in this labor market recovery
🇺🇸US #labor market still has a long way to go until a full recovery
We believe the #Fed will opt to wait until the November FOMC meeting to make a formal tapering announcement, and start reducing asset purchases in Dec/Jan, depending on employment & inflation developments
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- NEW qualitative outcome-based forward guidance for QE program that links the horizon to max employment + price stability goals
- no change to composition or size of QE, but a floor of "at least" $120bn per month
The latest economic projections:
- Stronger near-term growth expectations
- Quite strong #GDP expectations for 2021
- Lower unemployment projections: below 4% in 2023
- #Inflation only a tad firmer: below 2% till 2023
- #Fed funds rate at zero through 2023
The #Fed's #GDP growth & #unemployment forecasts help explain why the Fed decided not to increase size or composition of QE.
They foresee rather strong growth in 2021 with a rapid decline in the unemployment. I wonder what their labor force participation rate assumptions are.
#Fed Beige Book:
👍Modest to moderate activity
👎Some regions slowing
👎Recovery incomplete
👎 Employment growth slowing (at best)
👎Labor supply issues
👍Outlooks remained positive
👎Optimism has waned
👎 Concerns: #Covid fear, lockdowns, fiscal policy cliffs
👍Modest inflation
Initial signs of financial sector stress and expectations of rising delinquencies:
"...deterioration of loan portfolios, particularly for commercial lending into the retail and leisure and hospitality sectors. An increase in delinquencies in 2021 is more widely anticipated..."
"...more school & plant closings, & renewed fears of
infection, which have further aggravated labor supply problems, including absenteeism & attrition
Providing for childcare & virtual schooling was widely cited as a significant & growing issue for the workforce, esp. for women"
The economy grew 7.4% (or, 33.1% annualized) in Q3 – recouping two thirds of the #Covid output loss – but it remains 3.5% smaller than at the end of 2019.
The strong #GDP performance gives a false impression of the economy’s true health.
Much of the Q3 gain came from carry-over effects from fast progress in May-July while real GDP remained down 2.9% y/y in Q3.
Comparing the Global Coronavirus Recession with the Global Financial Crisis is quite telling:
Despite the strong Q3 rebound, real 🇺🇸GDP is now where it was at the trough of the Great Recession.
(*I know Q4 2007 is the start of GFC, but doesn't change the levels much)