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US recovery flashing warning signs ahead of last jobs report before election

The U.S. jobs recovery faces a double drag from the persistence of the pandemic and a lack of additional federal stimulus as the government is set to report the last official unemployment that rate voters will see before the election.

The September jobs report, due out Oct. 2, is expected to show a marked drop-off from the massive gains of the rest of the summer. S&P Global Ratings projects 800,000 jobs added in the last month, an eye-popping figure by pre-pandemic standards, bringing the unemployment rate down to 8.1%. But gains along those lines would show a marked slowing from the months since May. After a 4.8 million-job gain in June, employment grew by 1.7 million jobs in July and 1.4 million in August.

The next monthly employment report is due Nov. 6, so this will be the last to be released before the Nov. 3 election. Job gains, which President Donald Trump touted as a prime reason for reelection prior to the pandemic with 6.8 million added through February as the unemployment rate shrank from 4.1% in January 2017 to a record low of 3.5% early in 2020 have turned to a cumulative loss of 4.7 million.

Economists that S&P Global Market Intelligence talked to did not see much prospect for accelerating job gains without further federal fiscal help or a definitive defeat of the coronavirus.

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"The low-hanging fruit of job gains have largely been picked throughout the summer months," Elizabeth Crofoot, senior economist at the Conference Board, said in an interview. "With most government support expired, and as temporary layoffs increasingly turn into permanent job losses, consumers will likely pull back, potentially igniting another wave of business closures and job losses as we head into the fall and winter months."

'A sharper slowdown'

House Speaker Nancy Pelosi, D-Calif., and Treasury Secretary Steven Mnuchin met Sept. 30 to discuss another relief bill after months of legislative stagnation and disagreement over a price tag that would add to an already historically high federal budget deficit. That meeting ended without a deal, but talks are expected to continue. While Republicans see the Democrats' $2.2 trillion relief proposal unveiled earlier this month as too expensive, there are indications that the White House would like them to compromise to get a deal done. "The president instructed us to come up significantly, so we have come up from the trillion-dollar deal that we were working on earlier," Mnuchin told Fox Business on Sept. 30.

But with no second round of large-scale fiscal relief, the warned-about effects are already becoming reality.

American Airlines Group Inc. and United Airlines Holdings Inc. announced that they would furlough more than 30,000 employees as the number of travelers remains far too low for airlines to operate profitably. The industry was provided $25 billion in payroll support under March's CARES Act, though that expired at the end of September without renewal. The CEOs of both airlines said they would be able to reverse the furloughs only if Congress is able to pass another airline aid package to the tune of $25 billion. The Walt Disney Co. this week also said it would slash 28,000 jobs from its two U.S. theme parks.

"With no bill, we will see a sharper slowdown than we already have, since spending power begins to dwindle more quickly," Sarah House, director and senior economist for Wells Fargo Securities, said in an interview.

Prolonging the slump would mean a pickup in the long-term unemployed — those jobless for 27 weeks or longer — given that it has been about seven months since the pandemic spurred states and cities to start locking down. S&P Global Ratings projected that the unemployment rate likely will not reach its pre-pandemic level until mid-2024. The number of permanent job losers already stands at 3.4 million, or 25% of total unemployed workers, and the number of people out of work for 15 weeks or longer, already at four times the levels seen in 2019, will climb higher in September, Ratings projected.

"Workers who were unemployed for temporary reasons are now at greater risk of losing their positions permanently," Satyam Panday, senior economist for S&P Global Ratings, said about the expectations for job numbers to erode further. "One reason for temporary job losses becoming permanent is the length of the pandemic. The longer it runs, the higher the chances of business failures."

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Further, if state and local governments, among the nation's largest employers, do not get budget relief from the federal government, pressure to cut positions, rather than just furlough employees, will increase, Panday added. This category of employer was the only one with bigger payrolls in August than in February, though hiring in August was boosted by a 250,000-job influx of temporary Census workers.

Restaurants, retail at risk

Throughout the late spring and summer, many businesses resumed operations and stayed afloat, largely due to loans under the CARES Act's Paycheck Protection Program and consumers flush with extra income from fiscal stimulus payments and a $600 weekly bonus in unemployment checks. But as the weather gets colder and the U.S. braces for a possible one-two punch of seasonal flu and resurgent COVID-19, reopened businesses, especially in the leisure and hospitality sectors, face the prospects of diminished revenue that could force further job cuts.

"Jobless claims remain very elevated still, and the restaurants are very concerned they won't be able to serve indoors, there are big layoffs at theme parks," said Joel Prakken, chief U.S. economist for IHS Markit. "It's just not that bright as a situation going forward." Initial unemployment claims remain at levels higher than any time pre-pandemic every week, with another 837,000 U.S. workers filing for unemployment insurance the week ended Sept. 26.

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Personal spending, the biggest driver of the U.S. economy, dipped as low as $10.999 trillion in April after peaking at $13.417 trillion in January, but the consumer recovery has slowed since. The measure ticked up only nominally in August, to $12.874 trillion, according to federal data released Oct. 1.

Prakken said the jobs slowdown will coincide with a steep reduction in GDP growth in the fourth quarter after what he estimated to be a 30% annualized spike in the third quarter. He called the next three months a "fade after the bounce." For September, he projects a gain of 778,000 jobs to bring the unemployment rate down one-tenth of a percent to 8.3%.

The prospects for any lasting recovery are clouded by the persistent outbreak. Cases are trending upward in 26 states, particularly in the West and Midwest, prolonging the economic pain.

"It's going to be fits and starts as long as we don't have a vaccine," House said. "Activity is going to ebb and flow; once it looks better, people will venture out. When the virus flares up, people will hunker down again. All roads lead back to the virus."