Inside The Labor Market

9/10/20: Hope you had a great Labor Day weekend. Celebrating Labor Day prompted us to reflect on today’s labor market. Employers added 1.4 million jobs in August, according to last Friday’s Labor Department report. The unemployment rate, which peaked at nearly 15 per cent in April, declined to 8.4 per cent, putting it below the peak reached during the financial crisis. Some of the most recent gains, however, will be temporary: the federal government added nearly a quarter-million census workers. Job growth appears to be slowing, however, as gains have declined in each of the last three months. The economy is currently operating with about 11.5 million fewer jobs than it had in February, meaning it is about seven percent smaller.

The downturn has disproportionately affected women on two fronts. Not only do women comprise today’s majority of workers in several sectors that have collapsed − teachers, nurses and childcare workers − but the evaporation of childcare options leaves little choice for working mothers with children learning at home. Thousands of school districts started off fall semester with remote instruction. Meanwhile, the childcare workforce has contracted by more than 20 per cent since the beginning of the year. According to the Associated Press, it’s estimated that half of our nation’s childcare providers are closed and those that are open may not survive the crisis operating at a chronically reduced enrollment. This suggests that working mothers have been leaving their jobs to care for their homebound children. The August jobs report showed that 1.3 million women in their prime earnings years, aged 25 to 54, have stopped looking for work since February; a rate higher than that of other demographic groups.

Over the years, women have comprised an increasing portion of the American workforce. Nowadays, working mothers are the equal, primary or sole earners in 40 per cent of American families, up from 11 per cent in 1960, according to a recent Associated Press report. As of August, there were 5.7 million fewer women aged 16 to 64 in the workforce than at the beginning of the year, representing an eight per cent contraction in jobs as a result of the pandemic-induced lockdown.

Men have generally fared better slightly than women in the current environment, with jobs falling six per cent for men aged 16 to 64. Men tend to dominate production occupations like construction, trade, contractors and manufacturing, industries that have held up relatively well this year. Residential construction jobs have been insulated from the impact of COVID-19, slipping barely one per cent. Given the recent housing boom, we expect residential construction employment to surge in the coming months.

Whites, comprising 82 per cent of the workforce, have fared relatively better in this environment also, shedding six per cent, or about 7.8 million, of the jobs they held at the beginning of the year. Asians lost seven per cent, about 850,000 of their jobs; Latinos lost eight per cent, or 2.6 million; and Blacks lost 11 per cent, or about 2.2 million.

Much of the ethnic and racial disparity may be explained by education. In a lockdown economy, low-skilled, service jobs were hit hardest, particularly those related to travel and entertainment. The last six months have cut performing arts and spectator sports-related positions almost in half. The travel industry has been slammed: sightseeing, gambling, arts and entertainment have slashed 30-50 per cent of their jobs since February. The longer the lockdown persists the more likely these job losses will become permanent. United and American Airlines recently announced tens of thousands of staff cuts to combat the pandemic-fueled travel slump. Coca-Cola plans to lay off some employees.

A little more than 40 per cent of American jobs, or nearly 60 million, require a college education. Those “knowledge” jobs were more resilient, declining only about two per cent in the downturn, as most of that work could be done remotely. Jonathan Dingel and Brent Neiman of the University of Chicago estimate that 37 per cent of jobs can be done entirely from home. About 22 per cent of American jobs, or about 35 million, are held by employees with a high school diploma. Not surprisingly, those skilled positions were eviscerated, and have collapsed 10 per cent over the last six months.

Retail job trends depended largely on the segment, with mall-based merchandisers suffering deep job losses, while general-merchandisers thrived. Employment at clothing stores has fallen nearly one-third since February. Employers like Walmart and Costco added positions, expanding their workforce 10 per cent since February. Home improvement stores have also enjoyed a business boost: their combined workforces grew six per cent over the last six months. Amazon recently announced plans to hire 20,000 people across seven cities in the United States and UK.
Economists increasingly believe that remote working will permanently alter downtown business districts, as companies postpone or scale back their office footprints. Over many decades, an ecosystem centered around white-collar workers flourished in central business districts, creating what was estimated to be as many as 100 million jobs, including dry cleaners, gyms, restaurants and coffee shops. Business-wear retailers Brooks Brothers and J Crew have filed for bankruptcy protection. Starbucks estimated that abandoned urban corridors have cost it $2 billion in lost revenue. The “Zoom economy” threatens to upend business travel, including airlines, limo services, hotels and fine dining. Business travel is lucrative, accounting for nearly 70 per cent of airline revenue, yet less than 15 per cent of seats. The Wall Street Journal estimated that $2 trillion in corporate travel will not be spent this year. Air transportation jobs have already shrunk by one-fifth, and that’s before Congress’s aid for airlines is set to expire at the end of this month. Nearly one-quarter of mortgage-backed loans extended to hotels were delinquent at least 30 days in July. Meanwhile, JP Morgan, Ford Motor, Twitter and REI have each announced their vision of a permanent work-from-home environment. REI will be abandoning and selling its recently built campus in Bellevue, Washington.

The pandemic will undoubtedly change jobs and trends that had been building for decades. It’s too early to count out workers’ ability to move and adapt. Goods-producing jobs, for example, were better insulated against the pandemic. The growing trend in reshoring will help rebalance the US jobs market between goods-producing jobs and service jobs. Overall, there’s been a seven per cent pullback in production-related jobs while the service sector, except for health care, has seen its ranks plunge between 10 and 20 per cent. Modern production is easily automated, so a US manufacturing renaissance will not necessarily bring with a proportionate increase in well-paying manufacturing jobs. The American jobs market is in transition, but a combination of flexibility, training and government policies will help workers not only survive but thrive. American ingenuity and resilience will help us adapt to a new labor market landscape. As Darwin reminds us, adaptability to change is one of the keys to survival.

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Cresset is an independent, award-winning multi-family office and private investment firm with more than $45 billion in assets under management (as of 04/01/2024). Cresset serves the unique needs of entrepreneurs, CEO founders, wealth creators, executives, and partners, as well as high-net-worth and multi-generational families. Our goal is to deliver a new paradigm for wealth management, giving you time to pursue what matters to you most.

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