Job gains may slow in weeks ahead
Economists note states have halted reopening plans
Curb your enthusiasm.
The big rebound from the steepest job losses in U.S. history has gotten off to a roaring start, with a record 4.8 million jobs added to the economy in June, following 2.7 million gains the prior month. But the comeback is likely to slow significantly in the months ahead, economists say.
“We expect the recovery from here will be a lot bumpier and job gains to be more muted,” says economist Michael Pearce of Capital Economics.
Ian Shepherdson, chief economist of Pantheon Macroeconomics, thinks it’s even possible payrolls could decline in July and August.
The biggest stumbling block is that 21 states, largely in the South and West, have paused or reversed their reopening plans amid a spike in cases. Many opened sooner than health guidelines dictated. New U.S. coronavirus cases passed 50,000 this week, a single-day record.
Arizona has shut down bars, gyms, theaters and water parks. South Florida and California are closing some beaches for the July 4th weekend. Texas shuttered bars, limited restaurant capacity and banned elective surgeries.
“We expect the recovery from here will be a lot bumpier.” Michael Pearce Economist with Capital Economics
Even areas with declining cases and hospitalizations are scaling back on fears of contagion from the new hotspot states. New York City Mayor Bill DeBlasio, for example, has delayed indoor dining indefinitely. And regardless of state restrictions, many consumers avoid public gathering spots when they learn of infection surges.
The pullbacks are showing up in some real-time data. Kronos, which tracks worker shifts, says growth in that metric slowed from 9% in May to 6% in June, with shifts falling in Florida, South Carolina and Illinois the past few weeks. Hours worked at small businesses have plateaued the past couple of weeks after rising steadily since mid-April, and that trend is likely to continue or worsen, according to Homebase, a provider of scheduling software.
And Open Table has recorded a sharp drop in restaurant reservations
in the Houston area, notes Diane Swonk, chief economist of accounting firm Grant Thornton.
“It will not be long before businesses in the worst affected areas are forced to shutter, at least temporarily,” she says.
There are other factors. Some of the millions of small businesses that received forgivable federal loans as long as they retained or rehired staffers may be laying off workers now that the funds have run dry, according to Oxford Economics. That so-called Payment Protection Program also likely pulled forward employee callbacks that would have occurred in later months, Barclays says.
Some businesses, meanwhile, are permanently cutting ties with workers after waiting several months to assess the economy’s course. In June, 35% of officially reported layoffs in California were permanent, more than twice the May level, Oxford notes.
Those trends will make it even tougher for the economy to recoup historic, crisis-induced job losses. The 7.5 million jobs recovered in May and June represent just a third of the unprecedented 22.1 million shed in March and April, leaving total U.S. employment 14.7 million jobs below the pre-pandemic peak.
Initial jobless claims have remained high, totaling 1.4 million the week ending June 27 and topping a mind-boggling 48 million over the past 15 weeks. Many, however, also reflect furloughs and reduced hours under expanded eligibility for unemployment benefits.
A less tangible factor is business confidence. The rebound largely has been fueled by firms that have brought back laid-off employees as government constraints eased. As that rehiring slows, net job gains will depend more heavily on new hiring as companies expand or fill open slots left by workers who quit.
Tom Gimbel, CEO of LaSalle Network, a Chicago-area staffing firm, says such hiring partly rebounded from the depths in April but has remained low. Before the pandemic, many companies were aggressively hiring new sales representatives and converting temporary contractors to permanent employees – signs of a bullish outlook.
Both of those activities have subdued, Gimbel says.
Noting that companies are unsure if consumer spending will hold up after enhanced unemployment benefits and other government aid expires, he says, “There are these big unknowns.”
Swonk says that’s why it’s vital that Congress pass a new stimulus measure.
Some are more sanguine. While coronavirus cases have spiked, they’ve largely hit young people who are less remained vulnerable to severe illness, and deaths in states like Texas and Florida have remained low, says economist Jacob Oubina of RBC Capital Markets.
If those trends hold, he says, “You could be at the other end of the (state) shutdowns by the time you get to the July employment report.”
Corrections & Clarifications
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