This month, Senior Portfolio Manager Mike Welle takes a closer look at Non-Farm Payrolls by Industry.

Mike Welle, Senior Portfolio Manager

Market participants are fixated on the monthly release of the Non-farm Payrolls report. The Bureau of Labor Statistics also compiles this data by industry. U.S. Bancorp Asset Management (USBAM) looks to this additional level of detail for a further glimpse into the economic recovery and the prospects for labor markets going forward. In constructing our newest chart, we elected to focus on the major job categories which experienced the largest employment declines. As a whole, this data captures more than 90% of the total April job losses. The government sector, which was relatively the most stable in April, was also included as it stands to experience potential volatility going forward. Discussions on the proposed size of the fiscal stimulus package are closely monitored to gauge the effectiveness in filling gaps in state and local budgets.

Accounting for the lion's share of the pandemic's job losses, the struggles of the Leisure and Hospitality industry have been well reported. While global employers such as Marriot or Hilton may come to mind, the industry is dominated by firms with fewer than 500 employees. In 2017, these small businesses comprised approximately 60% of the industry's total employment. The industry is then particularly vulnerable not only to temporary layoffs but to something much more persistent and prolonged. We observe that while Leisure and Hospitality jobs rose sharply in May and June, more recent gains have been modest. Further, the progress over the past five months still leaves the industry well short of pre-pandemic employment levels. We can all likely think of several of these establishments in our neighborhoods which decided they can no longer remain profitable.

The importance of the Leisure and Hospitality sector to the overall economy is noteworthy. The group has historically accounted for approximately 10% of total private employment. Many of these workers are lower income ($17/hour) with skills that may not be immediately transferable to other positions. As a recent report by Oxford Economics highlights, it is difficult to see overall unemployment levels falling much below 6% without a solid and full recovery in Leisure and Hospitality. And that assumes a return to pre-pandemic numbers for all other industries, which also appear to be seeing more moderate gains of late.

Fed Chair Powell remarked at his September press conference, "The labor market is recovering, but it's a long way - a long way - from maximum employment." In response to a question of whether the Fed was looking to get unemployment rates to 3.5% or below his reply was "Yes, absolutely." USBAM sees a Fed that is unlikely to be content with the employment situation for several years ahead.

Sources

Loh, Tracy Hadden, Goger, Annelies, and Liu, Sifan, ‘Back to work in the flames': The hospitality sector in a pandemic, August 20, 2020

Oxford Economics, Tourism Economics Employment Situation in the Leisure and Hospitality Industry through July 2020, August 2020

U.S. Bureau of Labor Statistics

Wilmoth, Daniel, Small Business Facts, Restaurants and Bars Staggered by Pandemic, June 2020