ADP Wrong Yet Again
ADP report was too negative again. The October jobs report was very solid. Job creation in September was revised up from 661,000 to 672,000. Even better, private sector job creation was revised up by 15,000 to 892,000. Furthermore, in October there were 638,000 jobs added which beat estimates for 575,000.
Private sector job creation was an astounding 906,000 which rose from last month and beat estimates for 650,000. It even beat the best estimate which was 875,000. So much for the economic slowdown. U.S. economy has adapted to this virus. It’s dynamic.
Job creation actually accelerated! There is some COVID-19 fatigue which means business is going back to normal in spite of COVID-19. Obviously, the virus is worse in November, but it was quite bad in October too. Will this incremental spike in cases stop the economy?
Some are starting to doubt that with these great numbers. Plus, we could be getting vaccine data within the next 2 weeks. By the time the economy slows, the market will start to price in a full recovery due to a full reopening of the economy on the docket.
Where The Jobs Were
ADP report only said there were 365,000 jobs added which was way off. Their estimates for manufacturing and construction job creation were obviously too low. There actually were 38,000 manufacturing jobs added, not the 7,000 ADP claimed. That missed estimates for 48,000 and fell from 60,000.
As you can see from the chart below, there were 84,000 construction jobs added which destroyed ADP’s 7,000. It’s pretty obvious the construction industry is doing well because of the strong housing market.
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Leisure and hospitality added 271,000 jobs which was the most by far. It’s amazing to see the industry coming back with COVID-19 still hurting travel and restaurants. Maybe, people were too negative. It seems like without shutdowns, the economy can continue this recovery.
Furthermore, there were 208,000 professional and business services jobs added which is important because they pay well. One area with extreme weakness was the government as it lost 268,000 jobs which follows a loss of 220,000. 147,000 of the 138,000 decline in federal workers was due to the decline in temporary census workers.
Education & Telework
It was wrong to predict a recovery in education jobs as there were declines of 98,000 and 61,000 in local and state education employment. There were education jobs created, but those were taken away by the seasonal adjustment. It appears the budget problems state and local governments are faced with are limiting education job creation. Plus, many schools are still having kids learn from home. Speaking of doing things at home, the percentage of people who teleworked fell from 22.7% to 21.2%.
It’s not that many fewer people worked from home. It’s that more people who don’t have jobs that can be done at home came back to work. In October, 15.1 million people said they weren’t able to work because their employer closed or lost business because of COVID-19. That was down from 19.4 million in September. It’s not surprising there weren’t much more people back at the office because the pandemic is still going.
Industries that can’t adapt are deciding to go back to normal in spite of the virus. Industries that are able to adapt are staying with their plans. There is no reason to bring people back to the office if they won’t be completely safe. It’s cheaper to have people work from home anyway. Once competitors bring people back, all firms will follow their lead though because doing work in person will be an advantage.
Details Of The BLS Report
The unemployment rate plummeted from 7.9% to 6.9% which beat estimates for 7.7% and the most optimistic estimate which was 7%. Make no mistake about this though. The labor market is not back to normal. A 0.3% misclassification for workers employed but absent from work makes the real rate 7.2%. There are 10.1 million fewer people employed than before the recession.
If job creation continued at October’s pace, it would take 1.5 to 2.5 years to recover all the losses along with the jobs that would have been added if there wasn’t a recession. There would be 11.6 million more jobs without COVID-19. Job creation will probably slow in the next 12 months, but we could get a surge after the economy fully reopens.
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One of the reasons the unemployment rate fell is household employment caught up to payrolls as the chart above shows. In other words, the 2 data sets converged. U6 underemployment rate fell from 12.8% to 12.1% which means there were 0.3% more marginally attached workers. A peak after the 2001 recession was 10.4%, showing how far off base the labor market is.
Participation Rate & Permanent Job Losses
The labor force participation rate rose 0.3% to 61.7% which beat estimates by 2 tenths. That matches the cycle high 2 months ago. This report usually takes a few steps forward and then a step back. Step back was last month. Prime age labor force participation rate rose 0.3% to 81.2% which is 0.3% off the peak in June. We were due for an increase.
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The best part of this report is there were fewer permanently unemployed people. Worry in this recovery has been that people wouldn’t be able to get their jobs back. It turns out, permanent unemployment has increased less than last recession as the chart above shows.
The number of permanent job losers fell from 3.756 million to 3.684 million. That’s the 2nd decline since the recession started and the largest one. Number of temporary job losers on layoffs fell from 4.637 million to 3.205 million. Therefore, we have about 2.5 million workers who can easily get their jobs back.
They just need to get back to work at their old job. Once this normalizes, it will be tougher to add employment unless a vaccine reopens the economy.
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