October Jobs Report: Strong Economic Recovery is Unsustainable Without Additional Federal Stimulus

Dr. Bernard E. Anderson

The Wharton School, University of Pennsylvania

Senior Economic Advisor, National Urban League

The October Jobs Report released this week shows the economy is bouncing back strongly as businesses reopened across the country, but recent employment gains will be unsustainable without additional federal stimulus to bolster household income.

Consumer spending that was boosted by the CARES Act drove the numbers. The unemployment compensation programs that drove the spending expired in late July, reducing household income.

We’re in the flu season, coupled with the pandemic. Virus infections are rising in 43 states.  That might spark additional lockdowns that would retard sustained, growing business activity, and strong employment growth.   Once a vaccine is discovered to contain further spread of the virus, the economy will heal itself. Consumer confidence will grow and consumer spending, which represents two-thirds of GDP growth, will be sustained.  

A look at the numbers: a total of 638,000 jobs were added. While the private sector added 906,000 jobs, government employment declined by 268,000 jobs.  The unemployment rate is 6.9%, down a full percentage point from August, and the Black unemployment rate is 10.8% percent, down from 12.1% in September.  However, the employment growth masks the continuing employment deficit generated by the pandemic. Since February, the economy gained 9.3 million jobs, but 10 million workers remain unemployed. The uneven proportionate change in employment and unemployed widened the racial unemployment gap to 1.80, approaching the perpetual 2:1 gap.

The leisure hospitality industry-led job growth, with an increase of 271,000 workers, or two-thirds of total job growth. Professional and business services followed with 208,000 additional workers, and retail trade,  at 104,000 additional workers. Construction grew by 84,000 jobs, health care by 58,000 jobs, transportation, and warehouse by 63,000, and manufacturing by 38,000. The 269,000 jobs lost in government include 22,000 lost in education. 

Average hourly earnings rose 4 cents to  $29.50, and weekly hours worked remained unchanged at 34.8.                                                       

The path forward toward sustained economic recovery remains uncertain, but the sine qua non for steady growth out of the morass requires getting the virus under control.  A recent National Bureau of Economic Research survey of economists revealed that most do not expect the economy to return to pre-pandemic levels of business activity until late 2021, and that assumes a vaccine will be available in early in the year. In the meantime, conditions are likely to worsen if there is no additional stimulus to bolster household income, maintain business liquidity, and provide fiscal support for state and local governments. Currently, negotiations between House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin on the size and composition of a new stimulus program are at a stalemate.  A spending plan in the neighborhood of $ 2.0 billion is considered by most economists as the minimum necessary to prevent the economy from backsliding into recession in 2021.