Job Gains Remain Strong While Businesses Brace for Impact of COVID-19
The U.S. Labor Market added 273,000 jobs last month, well above the average monthly job gain of 200,000 for the last 12 months. At this time, the effect of the coronavirus has not yet materialized in the jobs number or overall consumer sentiment, and deeper impacts will not be felt this month or for several months to come.
Nominal job gain has started to slow but, absent the outside shock, the fundamentals of the U.S. economy remain very steady.
Labor Market Performance Highlights
- Unemployment rate returns to its 50-year low of 3.5 percent
- Healthy labor force participation at 63.4 percent
- Wage growth remains steady at 3.0 percent
- Strong job gain momentum to start 2020 may somewhat mitigate slump
Why It Matters
The fundamentals of the U.S. economy remain resilient. The U.S. labor market is seeing robust job growth to start the year and the economy can still capitalize on growth in specific sectors, even while businesses take measures to adjust their short-term strategies due to the COVID-19 impact.
Consumer sentiment in the U.S. remains high, coming close to the economic expansion peak set in March 2018. If the coronavirus becomes more widespread in U.S. communities, consumers are likely to limit their exposure to shopping malls, theaters, restaurants, sporting events and travel.
Amid the current environment, companies can:
- Consider employee welfare a top organizational priority. Encourage remote work, limited business travel and paid sick leave as staples of employee well-being.
- Ensure your company has proper HR communication strategies in place for workers impacted by the unfolding conditions.
- Run outage scenarios – both labor and the supply chain – and prepare contingency plans.
- Focus on competitive wages and retention initiatives for professional and tech employees, as the white-collar employment sector is traditionally more resilient to short-term economic impact than blue-collar workers.
- Consider short-term reductions in hiring for lower skill, blue-collar employment in entertainment, hospitality, hotel and restaurant entities, as these areas are impacted sharply, albeit briefly, by critical healthcare events.
Positive Economic Impacts
February Consumer Sentiment Index numbers rose to 101.0, near the economic expansion peak in March 2018 of 101.4.
Labor force participation rate held steady at 63.4 percent in February 2020.
The unemployment rate dipped back down to 3.5 percent in February 2020.
The change in total nonfarm payroll employment for December and January combined was revised upward by 85,000 jobs.
The Fed cut interest rates 50 basis points, which will be most encouraging to middle-income families and positively impact the housing market. Any additional interest rate cuts will likely encourage consumer spending.
The PMI® registered 50.1 in February 2020. This is a decrease from 50.9 reported in January, but on par with the 12-month average of 50.5.
The coronavirus and the length of the economic expansion may have meaningful impacts on supply and demand disruptions, posing stability concerns for financial markets and business investments.
GDP for Q4 2019 (second estimate) rose 2.1 percent, but full-year 2019 posted its slowest growth in three years at 2.3 percent.
A global slowdown remains a downside risk to the labor market. With the U.S. being largely service-based and China being largely goods-based, the U.S. supply chain is likely to be impacted.
Education and Health Care Services make up 16.1 percent of total employment. Gain within this industry was 54,000 jobs this month. In the past 12 months, this industry has produced more than 673,000 jobs. This industry is already seeing a shortage of labor and will continue to see a need for nurses and other medical and health professionals. A high impact is expected in the coming months for healthcare and social assistance. The challenge to attract workers remains high.
Leisure and Hospitality makes up 11.1 percent of total employment. Gain within this industry was 51,000 jobs this month. In the past 12 months, this industry has produced more than 400,000 jobs. Leisure and Hospitality jobs are expected to contract in the short term, but most blue-collar jobs, including jobs in this industry, tend to rebound quickly to the types of outside shocks being experienced now.
Government makes up 14.9 percent of total employment. Gain within this industry was 45,000 jobs this month. In the past 12 months, this industry has produced more than 262,000 jobs.
Construction makes up 5.0 percent of total employment. Gain within this industry was 42,000 jobs this month. In the past 12 months, this industry has produced more than 223,000 jobs. Considering the Fed rate reduction, construction jobs should continue to be strong as middle-income families are encouraged to purchase homes and wages continue to increase.
Professional and Business Services make up 14.1 percent of total employment. Gain within this industry was 41,000 jobs. In the past 12 months, this industry has produced more than 405,000 jobs. Due to the high cost of hiring and retention in this industry, expect Professional and Business Services jobs to be the most resilient to the coronavirus epidemic. This industry may experience slower hiring in lieu of layoffs and could even see increases in communications and human resource roles, specifically related to disaster and employee preparedness.
Financial Activities make up 5.8 percent of total employment. Gain within this industry was a robust 26,000 jobs. In the past 12 months, this industry has produced more than 160,000 jobs.
Manufacturing makes up 8.4 percent of total employment. Gain within this industry was 15,000 jobs this month. In the past 12 months, this industry has produced approximately 31,000 jobs. Manufacturing is expected to contract the most severely compared to other industries as concerns mount over the ability to conduct international trade.
Trade, Transportation and Utilities makes up 18.2 percent of total employment. Loss within this industry was 13,000 jobs this month. In the past 12 months, this industry has produced more than 137,000 jobs. Looking forward to March and the months that follow, Trade, Transportation and Utilities jobs will be negatively impacted due to concerns over the coronavirus epidemic. Blue-collar jobs in this industry will contract significantly but also recover quickly.
With the outside shock from coronavirus, impact to the U.S. economy is expected. This impact will primarily affect the Manufacturing, Trade, Transportation and Utilities and Leisure and Hospitality industries. In a worst-case scenario, a steep short-term deceleration in job growth could occur.
International trade and unexpected geopolitical volatility, including Middle East conflicts and the coronavirus, will be a big driver of consumer and business confidence in the near term.
Average annual wage growth will hit 3.3 percent for the year, with two of the largest sectors, Professional and Business Services and Information, growing at 3.3 and 3.5 percent, respectively.
Businesses should be leery of political rhetoric about the economy during the 2020 campaign season, paying attention instead to economic performance indicators.
Federal Reserve rate cuts and international bank follow on are likely during the year.
Annual job growth in 2020 is expected to decelerate to 1.2 percent, from 1.4 percent in 2019.
Jobs in Healthcare and Social Assistance are forecasted to lead at 2.4 percent, followed by Professional and Business Services and Construction at 2.1 percent. Professional and Business Services jobs will be driven by the Technical Sector, whereas Construction job growth will be supported by a healthy residential housing market likely due to appealing interest rates.
GDP is forecasted to slow to 1.9 percent in 2020, from 2.3 percent in 2019. The impact of the coronavirus is ongoing, which may carry further impact throughout the economy.
Long-term job growth is expected to slow significantly starting in late 2020 and will bottom out during Q3 of 2021.
To avoid any under- or over-arching impact statements regarding the shock to the labor market forecast, ThinkWhy is presenting three possible scenarios. Once March 2020 data becomes available, the forecast will be revised to reflect the actual impact of the coronavirus.