Coronavirus Disruptions Could Upend Labor Market’s Solid February Growth
The U.S. labor market turned in strong figures in February, although it is heading into increased uncertainty due to the coronavirus outbreak. Data from the U.S. Bureau of Labor Statistics reports that the U.S. economy added 273,000 new jobs in February and the unemployment rate declined slightly to 3.5 percent. And while The Conference Board’s Employment Trends Index declined last month, following an increase in January, it now stands at 108.96 compared to 109.85 one month earlier, the index’s decline is unrelated to the outbreak.
“The Employment Trends Index declined in February, following a strong increase in January,” says Gad Levanon, head of The Conference Board Labor Markets Institute. “The drop in February was the result of a large negative contribution from the ‘Jobs Hard to Get’ component. The total contribution of the other seven components was slightly positive. We therefore do not interpret the drop in the ETI in February as a sign of a weakening labor market prior to the COVID-19 outbreak. The outbreak had little impact, if any, on the index in February.”
Despite strong job growth over the last three months, prospects for the coming months are uncertain. The Conference Board points out that in February, some of the strongest employment gains were seen in education and health services, leisure and hospitality, construction, and professional and business services—all sectors that could see impacts from a COVID-19 outbreak in the months ahead. While manufacturing employment rebounded, job losses in wholesale and retail trade and transportation and warehousing place these industries in a tenuous position heading into the outbreak.
“The impact of the COVID-19 outbreak on the labor market will depend on the amount of time it disrupts economic activity in the U.S.,” adds Levanon. “If the economy resumes its previous course by April or May, the impact over the next few months will primarily be reflected in a drop in hours worked and perhaps in reduced hiring among the most impacted industries. However, if economic activity remains disrupted through early summer, then companies in travel, entertainment, lodging, food and hospitality are likely to reduce their workforce, including layoffs, especially of less skilled workers.”
While The Conference Board believes it’s too early to see the recent spread of the virus to parts of the U.S. reflected in the employment data, it cautions that consumers could temporarily pull back on spending on restaurants, travel and public events in the coming months. As revenues decline, companies will likely first freeze hiring or reduce employee hours before resorting to layoffs. Amid historically tight labor markets, and subsequent challenges around recruitment and retention, employers are expected to be especially hesitant to terminate skilled or recently trained workers. In contrast, lower skilled workers in high turnover industries most affected by COVID-19—such as food services—may be more vulnerable to job losses.
Manufacturing, which was beginning to trend positively in The Conference Board’s figures after facing slowing global economic growth and trade tensions, may face risks from disruptions to global supply chains that could negatively impact hours worked and job growth.
In the coming months, slowing demand associated with the COVID-19 outbreak could temporarily relax further tightening of the labor market, and falling revenues and labor hoarding could further squeeze corporate profits. For now, The Conference Board reports, February’s strong job gains put the labor market on solid footing as the economic impact of the unexpected viral outbreak begins to materialize.
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