No Double Dip Recession?

Job Cuts Fall

There were many media reports about new job cuts in October. The thesis was that we are entering into another wave of weakness like the spring. In hindsight, it’s not surprising the economy didn’t enter into a sharp slowdown because it didn’t in July when COVID-19 was worse. To be clear, COVID-19 is on the precipice of being worse than the summer in November. 

Now that we have a vaccine, will firms hold off on layoffs in anticipation of greener pastures? In other words, is the economy immune to a double-dip recession because there is hope of a reopening in about 6 months? Small businesses need capital now. It doesn’t matter to them if in 6 months the economy is better because they can’t pay the bills now.

On the other hand, bigger firms with access to capital markets will likely survive easily. Sentiment matters when it comes to hotels, cruises, and movie theaters. It’s much cheaper to raise capital now that there is optimism on the prospect of reopening the economy in 2021. That will limit layoffs in the industries that need the economy to reopen. 

Hence, it is a mixed bag until more help to small businesses comes in the form of a stimulus. All we can do now is look at how the economy was doing prior to the vaccine announcement. 

Details Of October Challenger Report

The challenger job cut report was impressive. It showed there was a 32% monthly decline in job cut announcements which completely discounts the narrative that the economy was headed for a double-dip recession in October. Of course, the economy could get worse, but there’s less of a chance of that now that we have a vaccine. 

Specifically, cuts fell from 118,804 to 80,666. That’s a 60% increase from last year, which sounds bad until you see the year-to-date increase was 320%. The rate of increase has declined.

The entertainment and leisure industry is by far the worst off as cuts increased from 12,308 in 2019 to 845,954 this year. Many of those jobs will come back within the next year. Don’t underestimate how quickly this industry can recover even if COVID-19 will be terrible in November and December. Capital doesn’t wait until things get better before acting. 

Investors will jump the gun and get ready for an improvement in the spring. Retail and transportation were next with 179,520 cuts and 159,674 cuts this year. California and New York are the worst 2 states as they had 390,238 and 238,390 cut announcements. Obviously, they are the biggest states; plus, they had bad outbreaks earlier in the year.

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There is a lot of room for the worst industries to recover. Even in October, energy and entertainment/leisure had the most cut announcements. They had 11,787 cuts and 14,804 this past month. It’s not just the energy firms’ market caps and revenues that are shrinking. 

As you can see from the chart above, the big energy companies have made massive job cuts. The demand downturn was the number one reason for cuts as they caused 28,281 of them. Year to date leader is still COVID-19 with 1.1 million. There were 255,198 new hires announced which was down from 929,860 but beat out each of the past 5 years’ Octobers. 

Firms that benefited from the new economy hired workers this year. Plus, some firms brought workers back as McDonald’s announced in September it would add 260,000 employees.

Wage Growth & Hours Worked

Wage growth was the only part of the October BLS labor report that missed estimates. It was a minor miss though. Monthly hourly wage growth was 0.1% which rose from 0%, but missed estimates for 0.2%. On a yearly basis, growth was 4.5% which fell from and missed estimates of 4.6%. 

Remember, which industry jobs are created in determines pay growth. There were a lot of leisure and hospitality jobs added which weighs on growth, but there were a lot of professional and business jobs added which boosts growth because they pay well.

The workweek length was solid. It stayed at 34.8 hours which beat estimates by 0.1. Last month’s reading was pushed up 0.1. That’s the highest reading in this data set. It goes back to March 2006. It troughed at 34.1 hours in March when fewer people worked because of the pandemic. 

Because of this change, weekly earnings growth fell from 5.8% to 5.7% which is still very strong. Other than this recession, this is the best growth since March 2006. It's highly doubtful that growth stays this high.

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Looking at manufacturing, the factory workweek was up by 0.3 hour to 40.5 hours. Overtime hours increased 0.2 hour. As you can see from the chart above, the trimmed mean in manufacturing job growth was 41,000 which is better than the previous 2 spikes in the last expansion.

Jobs About To Be Created

With the economy set to reopen either in the spring or summer of next year now that we have a vaccine, we can look at the industries set to create the most jobs. Technically, many weak industries already recovered the most jobs, but the difference is set to be more dramatic. In fact, it’s possible some of the hottest industries lose jobs next year. 

As you can see from the chart below, arts, entertainment, and recreation services are still down almost 1/3^rd of their jobs from February. They will likely almost all come back within the next year. Mining and logging, which is energy, will also go on a hiring spree when oil inevitably goes above $60 next year.

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On the other side, courier/messenger, good/beverage stores, and online retail will likely be hurt as people go back to normal. The software industry doesn’t employ that many people. It will certainly be hurt the most by the recovery. We should see an improvement in finance jobs as banking recovers. 

Most uncertain is education because it relies on state and local governments. Just because their balance sheets will improve next year doesn’t mean they won’t be in a black hole. They need help from the federal government to avoid disaster.