But Huge Drop in Unemployment Rate

The U.S. economy added 638,000 jobs in October, according to a survey of employers. This was slightly softer than the September increase in employment of 672,000 (revised higher from 661,000), and close to the consensus expectation of 600,000. Employment in the U.S. fell by 22.16 million combined in March and April as the pandemic took hold and states put restrictions on economic activity in place. Since May the economy has added back 12.07 million jobs, or about 54 percent of the jobs lost in the spring. However, after gains of almost 3 million jobs in May and almost 5 million jobs in June, job growth has slowed for the past four months. Employment is still only at its late 2015 level. And at October’s pace, it would take about 16 months for employment to return to its pre-pandemic level.

Private-sector employment increased by 906,000 in October, up slightly from gains of 892,000 in September. Government employment fell by 268,000 over the month, including a decline in federal government employment of 138,000, tied to the end of the decennial Census.

The unemployment rate fell a whole percentage point in October, to 6.9 percent, from 7.9 percent in September. Employment as measured in a survey of households jumped by 2.243 million; employment in the household survey is more volatile than in the employer survey. At the same time the labor force (the number of people either working or looking for work) increased by 724,000 in October, after a decline of almost 700,000 in September. Therefore, the improvement in the unemployment rate in October reflected a real improvement in the job market, and was not due to people dropping out of the workforce because of difficulty in finding a job or childcare concerns.

The unemployment rate was 3.5 percent in February, and then soared to 14.7 percent in April as the pandemic hit, the highest unemployment rate since the Great Depression in the 1930s. But the unemployment rate has declined steadily since May, although it remains well above its pre-pandemic level.

Job growth was solid across industries in October. Goods-producing industries added 123,000 jobs over the month, up from 97,000 jobs in September. The October increased included a gain of 84,000 jobs in construction; homebuilding has soared thanks in large part to record-low mortgage rates. Manufacturing employment increased by 38,000 in October, and the average workweek in manufacturing rose by 0.3 hours. Private services-providing industries added 783,000 jobs over the month, slightly below the September increase (795,000), with increases of better than 200,000 in leisure/hospitality services and business/professional services, and better than 100,000 in trade/transportation/utilities.

The average hourly wage rose 0.1 percent over the month to $29.50, and was up 4.5 percent from one year earlier. The loss of jobs in lower-paying industries like leisure/hospitality and retailing have skewed the average hourly wage higher. The average workweek, across all private industries, was unchanged in October at 34.8 hours.

The October jobs report was solid. Job growth was good, although slightly softer than in September. The big drop in the unemployment rate probably overstates the improvement in the labor market over the month, but there is no question that unemployment is falling as more laid-off workers return to employment.

That being said, the pace of improvement in the job market will be much slower in 2021 than in 2020. Job growth has slowed for four straight months, and is far slower than it was in the early stages of the recovery. The number of the permanently unemployed was essentially flat in October while the number of those on temporary layoff fell; it is much more difficult for the permanently unemployed to return to work. In addition, companies are announcing big layoffs as they adjust to the changing post-pandemic economy.

Risks to the job market recovery remain weighted to the downside. The number of COVID-19 cases has hit a record, and additional fiscal stimulus remains stuck in Congress. The uncertainty surrounding the presidential election could further delay another stimulus bill. And without federal aid state and local government could be forced to make huge job cuts in the months ahead to balance their budgets.

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