Zillow Market Pulse: July 2, 2020

July 2, 2020

Record gains in overall employment were achieved in June: Nearly 5 million jobs were added, and the unemployment rate fell 2.2 percentage points. But alternative measures of unemployment suggest that longer-term risks to the labor market might be growing — and will only be exacerbated by rising coronavirus case counts.

• Headline June jobs numbers were terrific…

  • The economy added 4.8 million jobs in June.
  • The official unemployment rate fell 2.2 percentage points from May, to 11.1%.

• …But the overall situation and underlying dynamics are still awful…

  • There’s been notable job growth in industries where it's hard to work from home, but sectors where working from home is easier haven't improved in the same way.
  • A measure of unemployment that removes temporary layoffs increased 0.9 percentage points in June from May.

• …And the recent, unaccounted-for increase in coronavirus cases won't help.

  • Just under 1/3 of June job gains were in food services and drinking places, businesses very susceptible to lengthened and/or reinstated stay-at-home orders.
  • States that house roughly half the country's population have plans to either postpone or reverse plans to reopen.

 So what?

At first glance, today's June jobs report was a blockbuster: A net total of 4.8 million jobs were added to the economy last month, easily the biggest one-month gain on record. The official unemployment rate fell by 2.2 percentage points to 11.1%, and sectors that saw heavy losses in the initial months of the pandemic saw marked gains – particularly leisure and hospitality, which added more than 2 million jobs itself. But even with the seemingly historic improvements, the fact is that the labor market remains badly damaged and nowhere close to fully recovered. Despite two consecutive months of job gains numbering in the millions, less than a quarter (24%) of jobs lost in March and April have returned, and the cumulative hit to employment remains worse than that during the Great Recession. While the overall increase in employment is obviously positive, more than 7 million people lost their job in June — and most of these so-called outflows went outside the labor force, suggesting that these job losses might be more permanent than temporary. Many of those that have managed to keep a job have seen their hours reduced – 7.9 million working Americans want full-time hours but are only working part-time because their employer doesn't have enough work for them, almost three times the February level (2.8 million). All this is to say that while a record increase in the labor market is welcome news, the economy has so much further to go to recover its losses.

The unemployment rate remains above where it was at the peak of the Great Recession, despite the recent improvement, and almost certainly understates the true extent of people out of work. Beginning with the April jobs report – the first one to show the carnage caused by COVID-19 – the large majority of the lost jobs were deemed temporary layoffs. That is still the case, and the majority of people that went back to work in June were just that – coming back to their old jobs, not starting new ones. But the share of unemployed workers whose joblessness is classified as temporary is falling. A so-called measure of "core unemployment" – which omits temporary layoffs and adds people who want to work, but count as out of the labor force – actually increased in June from May. A separate reading calculating the share of people that would remain unemployed if all temporarily-furloughed workers immediately returned to work barely budged in June, suggesting that more-persistent levels of unemployment remain elevated. Lastly, joblessness in industries where working from home is challenging (such as leisure and hospitality) remains elevated but is improving, but unemployment in sectors where it's easier to work from home is historically high and largely not improving. This shows that while re-opening plans have helped employees in many sectors get back to work (that they need to perform in person), it has not made a meaningful impact on some other industries. Taken together, it suggests that the damage to the labor market is severe and will last longer than many expect. Total joblessness may be trending downward, but sustained unemployment is making up a larger share.

Finally, the recent surge in coronavirus case volumes is largely unaccounted for in this report. The reference week for the June report was the calendar week that ended June 12, when people were feeling more confident in the overall downward trajectory of the outbreak, and just before case volumes began to steeply rise in many parts of the country. Since then, states that make up about half of the nation's population are either postponing or even reversing plans to reopen. The impact of the case count increases also appear to have affected small businesses' outlooks. According to the Census Small Business Pulse Survey, the gap between the share of businesses that have fired employees in the last week and those that have hired employees has increased to 2.8 percentage points, nearly three times the difference from two weeks ago. To make matters worse, a little under a third of June's employment gains were in restaurants, bars or similar establishments – employers whose businesses are very sensitive to spikes in coronavirus cases and stay-at-home orders. Stemming the spread of the coronavirus continues to be crucial to ensuring that the labor market continues to improve.

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