U.S. economy added 638,000 jobs in October but is still 10M shy of pre-COVID level

The U.S. economy created the fewest jobs in five months in October and more Americans are working part time, the clearest evidence yet that the recovery from the pandemic recession was slowing as fiscal stimulus ends and new COVID-19 cases explode.

The Labour Department’s closely watched employment report on Friday also showed 3.6 million people were out of work for more then six months, underscoring the challenges the next president, whether it is incumbent Republican Donald Trump or Democrat Joe Biden, confronts to keep the economy growing as it heals from the deepest recession since the Great Depression.

Biden edged closer to winning the White House early on Friday as he took a narrow lead over Trump in the battleground state of Pennsylvania. Trump on Thursday alleged fraud without providing evidence, suggesting some votes cast in Tuesday’s election were ‘illegal’ and launching lawsuits in several states over the ballot counting process.

Non-farm payrolls increased by 638,000 jobs last month after rising by 672,000 in September. That was the smallest gain since the jobs recovery started in May and left employment 10.1 million below its peak in February. A 271,000 increase in leisure and hospitality jobs accounted for about two-fifths of the payrolls gain last month.

Interest rates remain near zero

Employment in professional and business services increased by 208,000, with about half of the job gains in temporary help services. Government payrolls fell 268,000, weighed down by the departure of temporary workers hired for the 2020 Census and further job losses at cash-strapped state and local governments.

Economists polled by Reuters had forecast payrolls advancing by 600,000 jobs in October.

A contested election reduces the chances of another coronavirus rescue package from the government this year. Even if more fiscal policy is agreed on, it will likely be smaller than had been anticipated before the election.

That will shift the spotlight to the Federal Reserve. The U.S. central bank kept interest rates near zero on Thursday. Fed Chair Jerome Powell acknowledged the pace of improvement in the economy and labour market had moderated, noting that the recovery would be stronger with more fiscal support.

U.S. stocks took a breather on Friday after surging more than seven per cent this week. The dollar fell against a basket of currencies. U.S. Treasury prices were lower.

Long term unemployment

More than $3 trillion US in government pandemic relief for businesses and workers fuelled a historic 33.1 per cent annualized rate of economic growth in the third quarter. That followed a record 31.4 per cent pace of contraction in the April-June quarter.

Lack of fiscal stimulus and spiraling new coronavirus infections across the country have put the economy on a sharply slower growth path heading into the fourth quarter. Restaurants and gyms have moved outdoors, but cooler weather and the resurgence in COVID-19 infections could leave many in trouble.

Even if states and local governments do not impose new restrictions on businesses, consumers are likely to stay away, fearing exposure to the respiratory illness. The United States set a one-day record for new coronavirus cases on Wednesday with at least 102,591 infections, according to a Reuters tally.

Though small and medium-sized businesses have suffered most from the pandemic, large corporations have not been spared. Exxon Mobil last month announced 1,900 layoffs in the United States. Boeing said it expected to eliminate about 30,000 jobs, 11,000 more than previously planned, by end-2021.

The unemployment rate fell to 6.9 per cent from 7.9 per cent in September. But it continued to be biased down by people misclassifying themselves as being “employed but absent from work.”

Without this recurring mistake, the government said the jobless rate would have been about 7.2 per cent in October.

While the unemployment rate has dropped from a peak of 14.7 per cent in April, that is not a true reflection of the labour market’s health. The number of people out of work for more than six months surged by 1.2 million to 3.6 million in October.

The number of people working part time for economic reasons increased by 383,000 to 6.7 million, reflecting reduced hours because of slack work or business conditions.

At least 21.5 million people were receiving unemployment benefits in mid-October. Many people, mostly women, have dropped out of the labour force to look after children or because they fear contracting the virus.

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