BBVA Research publishes economic analysis: Strong November labor market report amid rising uncertainty

Industry-level job gains continue to be concentrated in the service sector with nonfarm payrolls increasing 271,000 in leisure and hospitality. According to the analysis, 58 percent of jobs lost to the pandemic in leisure and hospitality have come back. However, employment remains 3.5 million below pre-pandemic levels. Other substantial gains occurred in professional business services, retail trade and healthcare and social assistance. The report further noted that improvement in economic activity and housing demand have pushed up construction, transportation and warehousing, and manufacturing employment over-the-month.

The analysis, co-authored by BBVA Chief Economist Nathaniel Karp and Senior Economist Boyd Nash-Stacey, highlights the reverse in weekly hours declines from previous months, with all major industries except education and healthcare reporting a gain. Likewise, weekly earnings posted a solid 0.4 percent monthly gain, implying a 4.7 percent increase in the last 12 months.

The report asserts that the employment report suggests labor market conditions will continue to improve, albeit at a slower pace. While the team’s baseline assumes more modest gains in the labor market going forward, the larger-than expected drop in the unemployment rate suggests that it could fall below our current baseline of 7.1% by the end of the year.

That being said, the risk balance is tilted to the downside with an alarmingly high number of new Covid-19 cases, along with new lockdown measures abroad and the massive amount of uncertainty associated with the 2020 election, which could remain unresolved for some time. Rising COVID-19 case numbers may also increase the propensities of individuals to distance, regardless of whether there are compulsory lockdown measures. Without additional fiscal support, the analysis indicates that the risks of the labor market backsliding in the 4Q20 will continue to grow.