10/6/20: Market Update by Jack Ablin, Chief Investment Officer at Cresset
The COVID-19 pandemic inflicted unprecedented stress on the American economy and its labor market. More than 14 per cent of employed Americans, or 20 million people, lost their jobs in April. The current labor market remains stark. Sixty million Americans filed for unemployment benefits over the last six months, dwarfing the totals reached during the financial crisis. Despite a sharp rebound, nearly 11 million Americans, or about 7 per cent of the workforce, remain out of a job. By comparison, at the height of the financial crisis our workforce shrank by a little more than 6 per cent.
Meanwhile, the jobless rate has declined to 7.9 per cent from 14.7 per cent in April. However, the longer workers remain sidelined, the more likely their jobs will permanently disappear. As of April, there were 18 million job losses categorized as “temporary” by the Bureau of Labor Statistics, outpacing “permanent” job losses by a factor of seven. As of September, permanent and temporary job losses are one-to-one, at over four million each. Permanent losses reflect structural changes to the job market as business shifts away from the discretionary service sector, like travel and entertainment. For affected workers, getting reengaged into the job market becomes increasingly difficult the longer they’re sidelined, leading to declining labor participation rates.
Women appear to be disproportionally affected because of the collapse in sectors that are typically female dominated, like hospitality, education, entertainment and portions of health care. Of the 1.1 million people aged 20 and older who dropped out of the workforce last month, more than 800,000 were women, according to a report by The New York Times. Declines in labor participation among women have outpaced those of men every month since the pandemic started, as the burden of caregiving increased and many schools and childcare facilities remained closed.
The wage gap may have also played a role in women leaving the workforce. The decision to leave the labor market to stay home to care for children or elderly family members is difficult and often falls to the lower wage earner in a dual income household. In most cases, that’s a woman. Despite a narrowing wage gap, women’s incomes stood at 83 per cent of men’s last month.
More recently, the prolonged pandemic has begun to affect skilled jobs in higher-income households. The airline sector, whose business is off 70 per cent, is a case in point. American Airlines on October 1 announced a 20 per cent reduction in its workforce, about 19,000 employees, coinciding with the expiration of federal aid. United Airlines plans to cut 13,000 positions. While Speaker Pelosi has pledged relief, it appears the House’s pared-down proposal will languish in Congress. Even the financial sector, an area that had been insulated from the lockdowns, has not been unscathed. Goldman Sachs laid off 400 employees, citing the pandemic, and insurance giant Allstate cut 3,800, or about 8 per cent of its workforce. Disney announced the elimination of 28,000 jobs from its theme parks division, mostly in the US. CNBC reported in August that the parks shutdown cost the company $3.5 billion. While many of Disney’s workforce reductions represent part-time positions, we worry that prolonged uncertainty with no additional fiscal support could have a negative impact on consumer spending – which accounts for nearly 70 per cent of our nation’s economic growth.
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