Zillow Market Pulse: August 5, 2020

August 5, 2020

Just days ahead of the July jobs report, a read on the private sector suggests the recovery in employment has slowed to a crawl. Small businesses are struggling to keep their workers as key aid nears expiration. And the service and manufacturing sectors continue to rebound, but hiring activity isn't keeping up.

Private payrolls release shows slowdown in the labor market

• ADP: 167,000 private sector jobs were added in July, far less than expected
• The official July jobs report is due Friday

Report suggests that small business employment is due to recoil, absent additional aid

• Of small business employees who were rehired after being fired or furloughed at the beginning of the pandemic, 31% of them have been laid off again, according to a report from Cornell University
• Additionally, 26% of them were told by their employer that they could be laid off if no additional financial aid arrives

Service and manufacturing sectors continue to improve, but hiring remains subdued

• The ISM Services index rose 1 point to 58.1 in July from June and the Manufacturing index rose 1.6 points to 54.2
• But each report's subindex measuring hiring continues to contract

So what?

Ahead of Friday's release of the official July jobs report, a report today suggests that hiring in the labor market has slowed dramatically in the past month. The ADP private payrolls report – a monthly report from the payroll processor that is released two days before the official census report each month – showed that the economy added about 167,000 jobs last month. In normal times, that would be a decent release, but these days, when the labor market is trying to quickly recoup the 22 million jobs lost from February to April, the report was instantly viewed as a major disappointment. Most experts had expected at least 1 million jobs to have been added. The shortfall comes as the next fiscal relief bill continues to be debated in Washington, in which the extension of enhanced unemployment benefits has been a focal point. Those conversations will likely increase in intensity in the coming days, as two key labor market  reports – weekly unemployment claims figures and the official July jobs report – are due in the next two days.

 The slowdown in private sector hiring could also foreshadow a downturn in small business employment. After the ADP release showed that hiring among small businesses improved just barely in July, a survey conducted by Cornell University suggests that any improvements are due in large part to relief offered through the Paycheck Protection Program and may well evaporate once those benefits expire. According to the survey, just over 30% of workers who had been rehired after being laid off or furloughed at the onset of the crisis have since been let go a second time. What's more, about one in four workers that were hired back as a result of the PPP were recently informed by their employer that they could be let go again if the relief runs out. The report – which surveyed 653 respondents between July 23 and August 1 – went as far as saying the second wave of layoffs in the U.S. is already underway, even before the PPP officially expires on August 8. It's clear that the program's expiration poses a significant threat to small businesses across the country, which collectively employ about 50% of the workforce in the U.S.

 The stalling labor market recovery was echoed in key reports on the manufacturing and services sectors released this week. While reports from the Institute of Supply Management showed that activity in each sector expanded in July from June, as did new orders, hiring activity continues to contract. The service sector comprises about three quarters of the country's economic output and employs about 80% of all workers in the U.S., so the subdued recovery in hiring is a significant concern. It also suggests that while activity in the sector may be recovering, these improvements are not resulting in more people being hired. The reports' strong headline figures also offer some false hope. While output has improved from the month before, it remains below pre-pandemic levels.

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