The Pandemic Is Making the Jobs Numbers Look Paranormal

With the presidential election still undetermined, it may seem hard to focus on economic reports. Thursday’s financial news included two key reports on the employment picture ahead of Friday’s key unemployment report. These were on weekly jobless claims and on unit labor costs and productivity.

While the jobless claims report has become normalized, the impacts from the pandemic are making unit labor costs and productivity look like they are experiencing wild extremes that have never been reported before.

The U.S. Department of Labor reported that jobless claims fell to 751,000 last week from 758,000 the prior week. Dow Jones had its consensus estimate pegged at 741,000, and Econoday’s was at 745,000.

According to Labor Department, the four-week moving average fell by 4,000 to 787,000 and the insured unemployment rate was 5.0%.

The number of continuing jobless claims, those on benefits for two weeks or more, fell by 538,000 to 7.285 million for the week of October 24.

Separately, the Labor Department said nonfarm business productivity rose by 4.9% in the third quarter as output increased 43.5% and hours worked increased by 36.8%. Of course, these numbers are seasonally adjusted annual rates and were heavily influenced by pandemic shutdowns.

According to this report, the 4.9% gain in productivity in the third quarter was the second consecutive large increase and productivity had increased by 10.6% in the second quarter of 2020. Over the past four quarters, nonfarm business productivity has increased by 4.1%.

Unit labor costs fell by 8.9% from the third quarter of 2020. This was broken down as a 4.4% drop in hourly compensation and a 4.9% increase in productivity. The Labor Department further noted that the drop in labor costs during the third quarter was the largest decline since the first quarter of 2009.

Unit labor costs increased 2.5% over the past four quarters, and this is defined as the ratio of hourly compensation against productivity. Gains in hourly compensation reflect higher unit labor costs, and increases in productivity tend to reduce those unit labor costs.

Where things got bad is on the pay side of the equation, but this was due to the pandemic’s overall impact on the economy and with so many business closed or operating on skeleton crews. The third quarter of 2020 had a 9.1% drop in real hourly compensation, the largest decline recorded.

That 9.1% drop reflected a 4.4% decline in hourly compensation and a large increase of 5.2% in the consumer price index on an annualized basis. The Labor Department also noted that the decline in third quarter’s real hourly compensation was preceded by an increase of 24.4% in the second quarter of 2020.

Manufacturing sector labor productivity increased at a 19.0% annual rate in the third quarter of 2020, while unit labor costs in the total manufacturing sector decreased 18.2%.

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