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There are two U.S. labor markets: Morning Brief

Friday, October 9, 2020

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Virus-sensitive industries are ready for the vaccine

While the U.S. labor market has improved substantially from its extreme crisis levels earlier this year, it nevertheless remains in trouble.

According to Department of Labor data released on Thursday, 10.6 million workers were filing continued claims for unemployment benefits (unadjusted). This was down from 11.6 million the week prior.

“[T]he report points to a wounded economy that’s not in good shape for winter,” Indeed Hiring Lab economist AnnElizabeth Konkel said, adding that the number was “more than 1.5 times larger than their peak during the Great Recession.“

The rate at which American workers are filing for new unemployment benefits also continues to be disturbingly high. On Thursday, we learned that 840,000 filed new claims last week.

"The decline in continuing claims is welcome, but initial claims offer a better read on the real-time state of the labor market, and the downward trend has stalled, more or less,” Pantheon Macroeconomics’ Ian Shepherdson said. “The last significant weekly drop in initial claims was back in the final week of August, and that happened only because the Labor Department changed the seasonal adjustment methodology and did not revise the prior data."

In a research note published on Wednesday, Goldman Sachs economist David Mericle offered a more hopeful assessment.

“Scarring effects on the labor force have been less severe than feared,” he said, pointing to industry-level data from the Bureau of Labor Statistics. “Unemployment has fallen sharply, and most of the remaining job losers are either still on temporary layoff or are in industries that should largely recover with a vaccine.”

Mericle estimated that 60% of the jobs that have yet to be recovered from the pandemic were in these “most virus-sensitive industries.”

People are ready for things to get back to normal.
People are ready for things to get back to normal.

It’s a pretty crude way of distinguishing between industries. Nevertheless, it’s encouraging to see the degree to which industries less sensitive to the virus have recovered lost jobs. It suggests that the underlying economy is actually in pretty good shape and not broken by the imbalances that exacerbate recessions under — dare I say — normal economic cycles.

And so we have two labor markets: one that reflects an economy that’s open for business and one that continues to be held back by the virus.

“These [most virus-sensitive] industries will likely benefit from a surge in demand once a vaccine becomes widely available, which we expect in the first half of 2021,” Mericle said. “That should produce quick job gains in these industries, largely solving the temporary ‘mismatch’ problem created by the virus.”

The phrase “once a vaccine becomes widely available” is doing a lot of work here. Once again, we’re reminded that it comes down to having a vaccine for COVID-19. Let’s hope that comes sooner than later.

By Sam Ro, managing editor. Follow him at @SamRo

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