2 Americas And The Final Pre-Election Jobs Report

In the new week, markets will navigate top-tier data, geopolitical drama, and domestic discord in the US, as investors continue to prepare for what many believe will be a tumultuous November.

The last jobs report before the election is due Friday. Consensus is looking for 850,000 on the headline. If that pans out, it would mean the US labor market is a little more than halfway to recouping the losses from the pandemic.

As ever, it’s important to distinguish between month-over-month change charts which can be used to show a “V-shaped” recovery where there isn’t one, and charts which depict the progress along the way towards regaining pre-pandemic levels. The figure (below) shows the reality and what it would mean if September payrolls prints in-line.

To reiterate: While there has most assuredly been a “V-shaped” recovery in retail sales and various housing market statistics, we’re not there yet in the labor market. And the momentum is slowing.

Although markets (and, if the number is good, The White House) will obsess over the headline number, the more discerning among you will be keen to know how many more job losses are classified as “permanent”.

Remember, permanent job losses surged in August after abating in July (figure below). We still don’t know how much structural damage the economy incurred earlier this year, and permanent job losses is one way to gauge that.

Also in focus will be the divide between the white and African American unemployment rate. August marked the fourth month in a row the gap widened. In other words, it’s widened every month following the pandemic shock.

A September 24 Pew Research Center study showed half of adults who lost a job due to the virus are still unemployed. Disconcertingly, nearly two-thirds of those who reported losing wages during the pandemic said they are still earning less than they were prior to COVID.

That is the “scarring effect”.

“In addition to lost jobs, about one-in-five adults (21%) say that they personally had to take a cut in pay due to reduced hours or demand for their work as a result of the coronavirus outbreak”, Pew writes, in the color that accompanied the release of the survey results. “Most employed adults who say this happened to them (60%) say they are currently making less money than they did before the outbreak”.

The demographic breakdown from Pew’s poll paints an unfortunate, if wholly predictable, picture. Lower-income Americans and minorities are disproportionately affected.

The most notable disparity is the difference between the percentage of lower- and upper-income Americans who reported they had been laid off or lost a job. “Lower-income adults continue to be the most affected by coronavirus-related job losses or pay cuts”, Pew sighs.

That visual speaks for itself, and almost surely reflects the fact that the pandemic hit the services sector hardest.

The same poll shows that when it comes to paying for healthcare, bills, rent, and the mortgage, America is essentially two countries. Almost no upper-income Americans reported having problems with any of those expenses. For lower-income citizens, the situation is dire.

It’s against this backdrop that some lawmakers contend the US needs little more than “targeted” fiscal stimulus. Some recalcitrant Republicans insist the country needs no additional virus relief at all.

If you’re wondering how the post-March rally in the stock market factors into all this, the answer is that it doesn’t– not for lower-income Americans anyway.

The share of corporate equities and mutual fund shares held by the bottom 50% was 0.7% as of this summer — so, less than 1%. Speaking of 1%, the share of stocks held by them (the 1%, that is) sat at 51.8% as of the second quarter.

The Trump administration continues to run television ads suggesting (if not explicitly stating) that prior to the pandemic, the president reversed years of damage to the US labor market. That isn’t true. In fact, it’s patently false. The reality is that the Trump/Pence jobs market was slightly less robust than the Obama/Biden jobs market on average. The figure (below) strips out the pandemic.

Invariably, Trump will tout the number of jobs he’s “created” since the pandemic dealt the US economy the most grievous blow since the Great Depression. Mike Pence made similar claims last month.

Some voters will be amenable to that interpretation, despite it being manifestly absurd. The jobs the administration “created” in May, June, July, and August are in most cases just the same jobs that existed prior to the pandemic – employers are re-hiring based in part on government assistance and various schemes designed specifically to encourage businesses to call back employees let go during the crisis.

Make no mistake, that’s unequivocally a good thing. But to suggest it counts as “organic” (if you will) job creation is disingenuous in the extreme.

In the simplest possible terms: The headline jobs numbers from the May, June, July, August, and forthcoming September, NFP reports were only possible because of how huge the preceding plunge was.

In a society with equal access to education and a citizenry that cares about facts, I’d say that won’t be lost on voters. But since we’re talking about America, that doesn’t apply.