Zillow Market Pulse: September 4, 2020

September 4, 2020

More than 1 million jobs were added in August, bringing the official unemployment rate down significantly. But permanent layoffs are beginning to represent a larger share of total unemployment, indicating a potentially slower recovery to come — and the road back is already dauntingly long.

The August jobs report was a win on the surface…

• 1.4 million jobs were added in August.
• The headline unemployment rate fell to 8.4%, down from 10.2% in July.

…But troubling and persistent complications lurk under the hood of the labor market…

• A measure of persistent unemployment increased to 5.8%, matching its level from June.
• Significant differences in unemployment across races and genders highlight an uneven and unequal recovery.

…And there's still a long way to go to get back to anywhere close to "normal."

• There are 11.5 million fewer jobs in the U.S. than there were in February.
•  The unemployment rate remains higher than it was at any point in the recessions from the early 1990s and early 2000s.

So what? 

On the surface, the August jobs report was a win for the economy. The 1.4 million jobs added in August handily beat expectations (though almost a quarter-million of those were temporary Census workers). And the steep 1.8 percentage point decrease in the headline unemployment rate was driven by largely healthy dynamics: Participation in the labor force rose, and employment as a percent of the population also improved – signs that more jobs are truly being added, rather than people leaving the workforce. The national unemployment rate of 8.4% is well below the rate of 9.3% that the Federal Reserve projected for the end of 2020. So, by that measure, the labor recovery is ahead of schedule.

But like previous jobs reports, a look under the hood reveals glaring, enduring problems in the labor market — particularly that the nature of joblessness is becoming less temporary and more permanent. For the first time since March, less than half of unemployment is temporary, down from almost 80% in April. Core unemployment — a measure that omits those that are temporarily jobless – rose to 5.8% in August, matching its recent high from June. This is a deeply concerning sign for the labor market, and an indication of what the recession will look like once the pandemic's impact has moderated and businesses have fully reopened. The key question going forward for both the labor force and the economy overall is how quickly those who are currently unemployed long-term can get rehired. Additionally, there are significant differences in labor market health and opportunities by race and sex. The unemployment rate among white men is just under half of what it is for Black men, and women's participation in the labor force fell in August, while men's participation increased strongly. Lastly, concerns about the efficacy of the reports' underlying surveys – specifically due to a greatly diminished response rate – makes some headline figures (especially the unemployment rate) difficult to understand at face value.

So, despite a monthly job increase that would otherwise represent an enormous improvement in more "normal" times, the broader story in the labor market really hasn't changed. The unemployment rate improved, but is still very poor and higher than it ever got during recessions in the early 1990s and early 2000s. There are still 11.5 million fewer jobs in the U.S. than there were in February. Even if August's (normally-strong) pace of job growth continued going forward, it would still take eight months to recover to February's levels — and even longer to reach the levels that may have been reached by this point had the pandemic not arrived (pre-COVID, about 200,000 jobs were added each month). The fact remains that while the labor market does continue to improve, the snapback recovery has almost certainly come to an end. A much slower recovery is likely from here on out.

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