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Pandemic fears squeeze labor market as millions of Americans stay home

This is the first of a three-part series exploring key hurdles in the U.S. labor market's recovery, including persistent COVID-19 fears, the end of extra federal unemployment pay and a lack of child care options for parents of young children.

COVID-19's impact on U.S. unemployment has surged since early June, as the spread of the delta variant deters millions more Americans from entering the workplace.

An estimated 7.9 million Americans were out of work because of the virus in early September, up from about 4.9 million three months earlier, based on U.S. Census Bureau household surveys. The number of unemployed who had the disease or were caring for a sufferer rose by more than 2.5 million to 4.7 million, while the number who cited concerns about catching the virus climbed to 3.2 million.

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Part one: Pandemic fears squeeze labor market as millions of Americans stay home

Part two: US jobs may fail to get boost from end of extra COVID-19 unemployment support

Part three: Child care shortage shuts millions of Americans out of workforce

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The coronavirus drag will likely show up in monthly jobs data, due Oct. 8, with economists surveyed by Econoday expecting September's unemployment rate to be 5.1%, a slight decline from 5.2% in August. The jobless rate is unlikely to return to the pre-pandemic level of 3.5% before the end of next year, according to the National Association for Business Economics' latest survey, as virus concerns dent the impact of a record number of job openings and rising inoculations.

"I don't think there is any specific vaccination rate or case count that will make these fears a non-factor," said Michael Pugliese, an economist with Wells Fargo, in an interview. "Living with COVID is something we are all continuing to learn how to deal with."

Summer fears

COVID-19 fears reemerged as the top reason deterring a return to the workplace in August, based on employment website Indeed’s monthly surveys of unemployed Americans not urgently seeking work. Such concerns were cited by 24.2% of respondents in the August poll, up from 22.3% in July. The level hit 29.4% in June.

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The rebound mirrored a pickup in infections caused by the delta variant. The seven-day moving average for COVID-19 cases hit 160,000 in late August versus below 12,000 in mid-June, according to the Centers for Disease Control and Prevention. The count dropped throughout September, falling to less than 100,000 on Sept. 26.

"The delta variant really was a curveball," said Nick Bunker, economic research director at the Indeed Hiring Lab.

Increased vaccinations have helped cool the spread of the coronavirus, with about 55% of Americans inoculated by the end of September, according to an analysis of CDC numbers by Our World in Data. That was a rise of less than 6 percentage points from the start of August and slower than increases earlier in the year. Numbers jumped to 40% in early June from about 17% in early April.

"We still have a long way to go to reach any semblance of herd immunity," said Gregory Daco, chief U.S. economist at Oxford Economics. "I don't think we'll achieve 90% vaccination rates before next spring, and even then vaccine resistance may prevent us from achieving that threshold."

As more people get the vaccine, a booster regimen is rolled out and shots for children of all ages are approved, the job market will likely show some improvement, said Pugliese with Wells Fargo.

"That progress will probably be gradual and with plenty of bumps in the road," Pugliese said.