Jobs Rebound by 4.8 Million But Huge Headwinds Remain

Mish

Nonfarm payrolls expanded by a record 4.8 million but that leaves another 15 million to go.

The BLS Employment Report for June shows employment rose by 4.8 million and the unemployment rate fell to 11.1%

Initial Reaction

Both numbers are better than the consensus.

The Bloomberg Econoday consensus jobs estimate was +3.0 million and the unemployment rate consensus was 12.4%.

The BLS said that errors that plagued the March, April, and May reports were not as bad this month.

BLS Error Rate

As was the case in March, April, and May, household survey interviewers were instructed to classify employed persons absent from work due to temporary, coronavirus-related business closures as unemployed on temporary layoff. BLS and Census Bureau analyses of the underlying data suggest that this group still included some workers affected by the pandemic who should have been classified as unemployed on temporary layoff.

The degree of misclassification declined considerably in June. BLS and Census Bureau staff have been reviewing survey responses that might have been misclassified. The misclassification hinges on a question about the main reason people were absent from their jobs. If people who were absent due to temporary, pandemic-related closures were recorded as absent due to “other reasons,” they could have been misclassified. When interviewers record a response of “other reason,” they also add a few words describing that other reason. The review of these brief descriptions found that the share of responses that may have been misclassified was much smaller in June than in prior months. BLS and the Census Bureau are continuing to investigate the misclassification and are taking additional steps to address the issue.

If the workers who were recorded as employed but absent from work due to “other reasons” (over and above the number absent for other reasons in a typical June) had been classified as unemployed on temporary layoff, the overall unemployment rate would have been about 1 percentage point higher than reported (on a not seasonally adjusted basis). However, this represents the upper bound of our estimate of misclassification and probably overstates the size of the misclassification error. 

Add 1 percentage to unemployment rate for a better estimate.

Job Revisions

The change in total nonfarm payroll employment for April was revised down by 100,000,  from -20.7 million to -20.8 million, and the change for May was revised up by 190,000, from +2.5 million to +2.7 million. With these revisions, employment in April and May combined was 90,000 higher than previously reported.

BLS Jobs Statistics at a Glance

  • Nonfarm Payroll: +4.800,000 - Establishment Survey
  • Employment: +4,940,000 - Household Survey
  • Unemployment: -3,235,000 - Household Survey
  • Baseline Unemployment Rate: -2.2 to 11.1% - Household Survey
  • U-6 unemployment: -3.2 to 18.0% - Household Survey
  • Civilian Non-institutional Population: +157,000
  • Civilian Labor Force: +1,705,000 - Household Survey
  • Not in Labor Force: -1,547,000 - Household Survey
  • Participation Rate: +0.7 to 61.5% - Household Survey

Part-Time Jobs

  • Total Part-Time Work Change: -1,571.000
  • Involuntary Part-Time Work: -1,605,000 - Household Survey
  • Voluntary Part-Time Work: +2,743,000 - Household Survey

Don't try to make sense of those numbers as they never add up. I list them as reported.

BLS Employment Report Statement

Total nonfarm payroll employment rose by 4.8 million in June, and the unemployment rate  declined to 11.1 percent, the U.S. Bureau of Labor Statistics reported today. These improvements in the labor market reflected the continued resumption of economic activity that had been curtailed in March and April due to the coronavirus (COVID-19) pandemic and efforts to contain it. In June, employment in leisure and hospitality rose sharply. Notable job gains also occurred in retail trade, education and health services, other  services, manufacturing, and professional and business services. 

Unemployment Rate – Seasonally Adjusted

Nonfarm 2020-07c

The above Unemployment Rate Chart is from the BLS. Click on the link for an interactive chart.

Month-Over Month Changes by Job Type

Nonfarm 2020-07D

Hours and Wages

Average weekly hours of all private employees declined 0.2 hours to 34.5 hours. Average weekly hours of all private service-providing employees decline 0.2 hours to 33.6 hours. Average weekly hours of manufacturers rose 0.3 hours to at 39.2 hours.

Average Hourly Earnings of All Nonfarm Workers fell $0.35 to $29.37.

The numbers are distorted because more higher-paid workers kept their jobs than lower-paid employees.

Average hourly earnings of Production and Supervisory Workers fell $0.29 to $24.74. 

Year-Over-Year Wage Growth

  • All Private Nonfarm rose from $27.96 to $29.37.
  • Production and supervisory rose from $23.47 to $24.74.

These numbers are distorted because more higher-paid workers kept their jobs than lower-paid employees.

For a discussion of income distribution, please see What’s “Really” Behind Gross Inequalities In Income Distribution?

Birth Death Model

Starting January 2014, I dropped the Birth/Death Model charts from this report. 

For those who follow the numbers, I retain this caution: Do not subtract the reported Birth-Death number from the reported headline number. That approach is statistically invalid. 

BLS Covid-19 Statement on the Birth-Death Model

The widespread disruption to labor markets due to the COVID-19 pandemic and the potential impact to the birth-death model have prompted BLS to both revisit research conducted in the aftermath of the Great Recession (2008-2009) and incorporate new ideas to account for changes in the number of business openings and closings. Two areas of research have been implemented to improve the accuracy of our birth-death model in the CES estimates. These adjustments will better reflect the net effect of the contribution of business births and deaths to the estimates. These two methodological changes are the following:

1: A portion of both reported zeros and returns from zero in the current month from the sample were used in estimation to better account for the fact that business births and deaths will not offset.

2: Current sample growth rates were included in the net birth-death forecasting model to better account for the changing relationships between business openings and closings.

BLS will determine on a monthly basis if the adjusted birth-death model described here continues to be necessary. We will disclose these changes each month in the Employment Situation news release. All months in the tables of net birth-death forecasts on this page include footnotes for any month in which a regressor was used to supplement the forecasts.

The Birth-Death model is essentially garbage but we likely will not find how distorted this is until the annual revisions next year.

Table 15 BLS Alternative Measures of Unemployment

Nonfarm 2020-07B

Table A-15 is where one can find a better approximation of what the unemployment rate really is.

The official unemployment rate is 11.1%. However, if you start counting all the people who want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6.

U-6 is much higher at 18.0%. Both numbers would be way higher still, were it not for millions dropping out of the labor force over the past few years.

Some of those dropping out of the labor force retired because they wanted to retire. The rest is disability fraud, forced retirement, discouraged workers, and kids moving back home because they cannot find a job.

Covid-19 has also distorted the U-6 unemployment rate as noted by the huge discrepancy in part-time employment.

Strength is Relative

It’s important to put the jobs numbers into proper perspective.

In the household survey, if you work as little as 1 hour a week, even selling trinkets on eBay, you are considered employed.

In the household survey, if you work three part-time jobs, 12 hours each, the BLS considers you a full-time employee.

In the payroll survey, three part-time jobs count as three jobs. The BLS attempts to factor this in, but they do not weed out duplicate Social Security numbers. The potential for double-counting jobs in the payroll survey is large.

Household Survey vs. Payroll Survey

The payroll survey (sometimes called the establishment survey) is the headline jobs number, generally released the first Friday of every month. It is based on employer reporting.

The household survey is a phone survey conducted by the BLS. It measures unemployment and many other factors.

If you work one hour, you are employed. If you don’t have a job and fail to look for one, you are not considered unemployed, rather, you drop out of the labor force.

Looking for jobs on Monster does not count as “looking for a job”. You need an actual interview or send out a resume.

These distortions artificially lower the unemployment rate, artificially boost full-time employment, and artificially increase the payroll jobs report every month.

Final Thoughts

The BLS is still guessing but it thinks its guesses are better. 

I suspect the birth-death models have significantly underestimated permanent business closures. 

Regardless, the economy is short 15 million jobs and they are not all coming back.

Recovery Will Take Years

As noted yesterday The Fed Promotes a Quickening that Takes Many Years

Huge headwinds remain and the reopenings are now in reverse. Don't expect huge gains in July.

Mish

Comments (30)
njbr
njbr

People returning to jobs they had, hoping everyday that they will continue to have those jobs.

Great uncertainty throughout the economy.

Very different than growth in new jobs.

LawrenceBird
LawrenceBird

Mish - if continuing claims are flat, initial claims still high and stable, PUA claims growing (and large) - how does BLS report a surge in employment? Did the dead rise to take those jobs?

AWC
AWC

Debt doesn’t matter.

Jobs don’t matter.

Profits don’t matter.

All that matters is the quantity of Fed stimulus.

Too positive a jobs report could reduce Fed loosening. Or worse, encourage the expiration of the $600 a week unemployment subsidy.

It’s the new normal. Merit no longer determines outcome. The Feds choosing of winners and losers does.

So, all eyes on the “Mighty Fed.” It now owns this whole shoot’n match.

Fight ‘em if ya feel frisky, but keep in mind you are likely too small to succeed.

anoop
anoop

DNFTF

Montana33
Montana33

Very helpful to see details on where jobs are returning. All these jobs will be lost again in about 4 to 6 weeks when hospitals across the country get blown out. Retail, leisure and entertainment jobs are doomed. Very sad. I feel so bad for these people who are going to get laid off again.

MiTurn
MiTurn

Suddenly there are a lot of 'now hiring' signs in the windows of local retailers, but exclusively places like restaurants, bars, some small retail places -- all service jobs. Can't imagine that this will last as the state of my residence is seeing sharp increases in Covid cases. The governor might return us to stage 3 or whatever .

tokidoki
tokidoki

I am tired of having to constantly change my Dow projections given all this winning.

Dow 12 million?

Herkie
Herkie

So big uptick in jobs? And they are downplaying that new unemployment claims were also significantly higher... The Labor Department said initial jobless claims rose by 1.427 million last week.

This marked the 15th straight week in which initial claims remained above 1 million.

Also the most recent week for data on continuing claims is June 20 and that total is 19.3 million.

So, I do expect next week we will see a higher revised set of numbers, naturally, and we will see new and continued claims skyrocket as reopenings are RECLOSINGS now that we are clearly in a second wave.

That and I can barely keep up with the news on all the new BK filings, NPC International, the operator of 1,200 Pizza Hut and nearly 400 Wendy's restaurants in the United States, has filed for bankruptcy.

GNC (June 23)
Tuesday Morning (May 27)
Centric Brands (May 18)
J.C. Penney (May 15)
Stage Stores (May 11)
Aldo (May 7)
Neiman Marcus (May 7)
J. Crew (May 4)
Roots USA (April 29)
True Religion (April 13)
Modell's Sporting Goods (March 11)
Art Van Furniture (March 9)
Bluestem Brands (March 9)
Pier 1 (Feb. 17)
SFP Franchise Corp (Jan. 23)

Add Gold's Gym, Chesapeak Energy, Hertz,

And national law review has posted a list of 20 companies to watch for BK filing some of which have already happened:

Chuck E. Cheese’s – Secret Pizza Selling Flopped. The Complexreports that the company’s plan to secretly sell pizza under Pasqually’s Pizza & Wings on delivery apps, a reference to a musician who plays in Chuck E. Cheese’s band, flopped. The Wall Street Journal cited that its parent company, CEC Entertainment, was almost $1 billion in debt as it asked lenders for a $200 million loan to keep the business open. With 610 locations across 47 states that provide primarily closed quarters space for kids, it’s hard to see how this company does not file.

AMC – Let’s Go to the Movies? According to the Hollywood Reporter, the company is expected to disclose first-quarter financials showing a $2.4 billion loss due to the pandemic. Some analysts think the company can hold out until October 2020 before making a bankruptcy call. However, the real test will be will moviegoers feel safe to go to the cinemas when they open this summer?

Brooks Brothers – Nowhere to Wear a Suit. Forbes reports revenues have been flat for the last three years, and the 202-year-old company recently took a loan of $20 million from Gordon Brothers, the bankruptcy liquidator. Bloomberg notes that Authentic Brands Group and Simon Property Group are discussing purchasing the company in a Chapter 11 filing. Brooks Brothers faced a difficult market prior to the outbreak with relaxed dress codes. Adding the cancellation of a host of events this year, like weddings and other formal functions, does not bode well for the retailer.

Bed Bath & Beyond. According to The Motely Fool, the company ended fiscal 2019 with $1.4 billion of cash and investments, up from $1 billion a year earlier. Yet, the company instead of using this time of closed stores to remodel or re-envision itself, has the same old floor plans. Further, it continues to have difficulties in online sales, unlike its competitors The Home Depot, Target, and The TJX Companies.

Victoria’s Secret – Closing a ¼ of stores. USA Today reports in May 2020 that the company planned to permanently close approximately a quarter of its 1,000 stores in the U.S. and Canada in 2020. Prior to the pandemic, the company suffered from lack luster sales and slower foot traffic. Perhaps a smaller footprint will help.

Ascena Retail Group. With more than 3,400 stores, the owner of women’s clothing brands, including Loft, Ann Taylor, Justice, Lane Bryant, and Catherines has been hit hard by the pandemic. Many landlords have failed to receive any rent payments from the brands since the stay at home orders were issued. With stores closed and tough competition with on-line sales, bankruptcy appears to be the only option.

LA Fitness – A Reduction in Footprint? Last year the Irvine, California company was named number one on Club Industry’s Top 100 Clubs list for the sixth consecutive year. However, the difficulties in operating a club in this environment are clear. If this company does file, expect it to use the filing as a true footprint reduction to consolidate stores. The company could follow in the footsteps of Gold’s Gym and 24 Hour Fitness, which both just recently filed.

GAP – Falling into Bankruptcy? The company, which owns Banana Republic and Old Navy, announced it would close 230 stores prior to the pandemic. Reuters reported in late April, the company stated that it was suspending rent and needed to borrow more money. Fortune reports that CEO, Sonia Syngal recently called on landlords to be flexible and work with retailers to get through the biggest crisis in retail’s modern history. The San Francisco Chronical predicts that the retailer will be in bankruptcy court, but that it can use its good credit ratings and relatively little debt to stave off the filing for a bit.

Guitar Centers – Filing Towards End of Year? Bloomberg reports that the company gained some reprieve with new bonds for old debt. The largest U.S. retailer of musical instruments and equipment fulfilled its previously skipped debt payments. However, with concerts and other venues not opening, it may be difficult for them to stave off bankruptcy this year,

GNC – Filing in August in Pittsburgh? The Trib reports that the Pittsburgh-based company secured a deal to extend time to pay down debt. However, the deal is only good through mid-August. The company closed 900 stores last year and S&P downgraded the company. Many thought that GNC would follow competitors like the Vitamin World, which filed in 2017. Bloomberg reports that the company continues to hoard cash and not pay rent to landlords.

Party City – Is the Party Over? RetailDive reports the company carries significant debt from a leveraged buyout and was hurt from a helium shortage last year for balloon sales. This coupled with a poor Halloween and the pandemic with cancelled graduations and prohibitions against large gatherings could lead to a filing soon.

The Men’s Wearhouse and Jos. A. Banks – Two for One Filing? Bloomberg reports that Tailored Brands, the retailers’ Houston-based parent company, is trying to restructure more than $1 billion in debt. Kirkland & Ellis and investment bank PJT Partners are advising Tailored Brands on restructuring, The parent and its affiliates have struggled as demand for suits and other formal wear has declined.

GameStop – The New Blockbuster Video. RetailDive reports that the company has a miserable 2019 – closing about 200 of its stores and sales dropping 28%. Moody’s and S&P both downgraded the retailer prior to the pandemic hit. Unlike Blockbuster, the company has a strong balance sheet and flexible leases. But it is difficult to see how it can continue in this new environment where gamers can get there content on-line.

Francesca’s. According to Alpha Street, the Houston-based, boutique women’s apparel and accessory retailer, continued to cut costs by closing more than 10 of its 700-plus stores and laying off a sizeable chunk of its corporate staff. However, last summer, the company secured $10 million in new financing. Despite the belt tightening, the company appears poised for a possible Chapter 11 filing as it struggles to both drive traffic towards its key fashion trends and compete due to the continuing shift in customer demand away from physical stores to on-line venues.

Stein Mart. RetailDive reports that despite a positive profit in first quarter 2019, the company’s top sales have fallen for the past few years. The company has taken steps to install self-service Amazon lockers in about 200 of its 283 stores in an effort to drive traffic. With tight margins and online retailers, the company faces difficulties and could be forced to file for bankruptcy protection.

Rite Aid. Investor Place reports with more than 2,400 stores, Rite-Aid remains challenged and is engaged in a never-ending turnaround plan. Although the bankruptcy filing of Fred’s retail pharmacy freed up some market share, the company continues to fight for survival in a competitive pharmacy environment. Further, the pandemic is keeping people away from stores, including drug stores.

Hobby Lobby – Divine Intervention? According to Business Insider, the company’s founder reportedly told employees a message from God in informed his decision to leave stores open amid the start of coronavirus outbreak. The decision was quickly changed with the closing of all stores in April. All though some have started to re-open, the company could use a bankruptcy filing to reduce its footprint.

99 Cents Only – Will Consumers Continue to Treasure Hunt? – RetailDive reports that the company recently made a deal with creditors and its private equity owners to trade debt for equity. The announcement caused S&P to downgrade the retailers credit rating, to CC. The deal is reminiscent of Charlotte Russe, which obtained the same relief for only a brief respite prior to filing for Chapter 11. Will people go back to the retailer, which is essentially a “treasure hunt” for consumers sifting for deals, or will the virus’ log lasting impact change consumer behavior to avoid such “treasure hunting” stores.

RetailDive reports that prior to the virus, the company had a CCC+ or lower rating from S&P. Now with the last few months of stay in orders, many consumers have been making their purchases online, using familiar sites like Amazon. Can the pet store company pivot to more of an online mode or will its heavy focus on physical stores lead it to a filing?

Best Buy – Can its Customer Focused Approach Work? According to MarketWatch, the company’s reopening strategy is focused on one-on-on service. The Street recently listed them as one of the top 15 to watch for a filing. However, the question is will the company’s customer-focused approach work with consumer behavior in the new normal?

tokidoki
tokidoki

Can you say whiplash?

Workers getting laid off for second time as virus's surge closes businesses
Workers getting laid off for second time as virus's surge closes businesses

When she was first furloughed in March, Randee Heitzmann knew how to make ends meet. She deferred payments on her new Honda Civic, spent $3,000 in stimulus money and tax returns on other payments, and drained her savings. Then she was called back to her job, as a bartender at a cigar bar near Dallas for five weeks, taking home about $100 per shift, just 20% of what she was used to. But on Friday, Heitzmann was cut loose again, hours before her shift was to begin. "I don't have any savings left," the 28-year-old said. "I don't know how long it's going to be before I get a paycheck again." Millions of American workers are suffering from economic whiplash, thinking they were finally returning to work only to be sent home again because of the coronavirus's latest surge. Stores, restaurants, gyms and other businesses that reopened weeks ago are shuttering again, and this time Congress appears less inclined to provide additional aid. Other businesses that had banked on customers returning and restrictions lifting - such as hotel chains, construction firms and movie theaters - are seeing hours cut and reopening dates pushed back indefinitely as consumer demand stalls. And many governors, including some who had drawn scrutiny for initially playing down the virus's risks, are issuing new safety restrictions, in some cases just weeks after the first round of guidelines had begun to lift. In recent weeks, three states - California, Florida and Texas - have implemented policies that partly restrict restaurant or bar service. Nine others - Arkansas, Delaware, Idaho, Louisiana, Michigan, Nevada, New Jersey, New Mexico and North Carolina - have postponed or slowed reopening plans. Thousands of workers are caught in these rapidly shifting seas, many of them hourly and low-wage...

truthseeker
truthseeker

Speaking of jobs, I wonder if anybody has considered how important it is for the country for college and professional football to take place this year as scheduled. Football has become a great culturally unifying activity in America, and there are only 2 days a week, Tuesday and Wednesday, when there is no football. The recent NFL virtual draft was more popular than ever taking place even as the pandemic continued to worsen. Things need to get better in a hurry by September, or the number of jobs lost will be dramatic, and the potential for trouble in a divided nation will increase I fear.

Jojo
Jojo

This excellent article talks about the CV19 effect on jobs and society in general.

Independence Day in the Midst of Dictatorship
AIER >> Daily Economy >> Policy >> Freedom >> Crisis >> Authoritarianism
James Bovard
– July 2, 2020

Tony Bennett
Tony Bennett

"I suspect the birth-death models have significantly underestimated permanent business closures."

...

B/D is downright laughable. For June BLS guestimated that number at +295K (versus +109K for June 2019).

What I find interesting. BLS admits main survey flawed (but, hey, it generates a better headline) but no change to how conducted:

"According to usual practice, the data from the household survey are accepted as recorded. To maintain data integrity, no ad hoc actions are taken to reclassify survey responses."

Yet, for B/D felt the need to change how survey conducted (hhmm, +295K sounds a lot better than a -xxx I guess):

"The widespread disruption to labor markets due to the COVID-19 pandemic and the potential impact to the birth-death model have prompted BLS to both revisit research conducted in the aftermath of the Great Recession (2008-2009) and incorporate new ideas to account for changes in the number of business openings and closings. Two areas of research have been implemented to improve the accuracy of our birth-death model in the CES estimates."

CA2020
CA2020

Mish I have a question about year over year wage growth. Is it used to make adjustments to say social security or anything else?


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