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U.S. Unemployment Rate Further Improves in October

Posted: Monday, November 9th, 2020

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Last Friday, the U.S. Unemployment Rate for the month of October showed further improvements in the labor market. The rate dropped to 6.9% on 7.7% expectations and 7.9% previously. It represents the seventh consecutive decline since April and reflects the resumption of economic activity in the United States.

The U.S. Unemployment Rate comes out the same day with the Non-Farm Payrolls. More precisely, every first Friday of the month, the Bureau of Labor Statistics reveals the data belonging to the previous month.

In October, the U.S. economy added 638k new jobs. However, behind the obvious positive headline, some worries exist regarding permanent job losses. In fact, some voices argue that the labor market will not improve further should the permanent job losses continue. Hence, for further improvement, we should see a reverse in the permanent job losses rising trend.

U.S. Unemployment Rate

October 2020 U.S. Unemployment Rate and NFP Report

The October 2020 NFP report revealed that the number of people in temporary layoff fell by 1.4 million. Also, it showed that the labor force participation rate increased by 0.3%, another welcomed sign of economic recovery.

Most jobs were created in the leisure and hospitality industry (271k), followed by professional and business services (208k). However, coronavirus impact on the U.S. Unemployment Rate remains significant, as most sectors did not add back the jobs lost since the pandemic started.

The markets did not react to the release for the simple reason that the U.S. election outcome was pending. Biden’s win in Pennsylvania came only on Saturday so that the NFP report did not have the usual impact.

An interesting take of last Friday’s jobs data comes from comparing the three alternative measures of the unemployment rate. The realistic rate, seen at 9.4%, reflects the adjusted U.S. Unemployment Rate to a pandemic labor market. We see it dropping since April 2020, aiming at convergence with the full recall unemployment rate (i.e., the unemployment rate if all workers on temporary layoff were immediately recalled to work.

It becomes clear that the future trajectory of the unemployment rate depends on how the pandemic evolves. If we look at the high infection rates in Europe and consider the cold weather to hit the United States too, then there is a long way to employment recovery.

However, hope does exist. Science comes to help as Pfizer-BioNTech experimental vaccine shows an efficiency of over 90% in preventing COVID-19. Obviously, there is much work to be done, but hope is something the world is in need of right now. Optimism will cause companies to rethinking their employment levels and would translate into further improvements in the U.S. Unemployment Rate.

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