Key Takeaway: Employment levels are improving, but at a declining pace. Fortunately, employment recovery is much stronger in the sectors most relevant to the HVACR industry.
On October 2nd, the Bureau of Labor Statistics (BLS) released its Employment Situation Summary – aka “The Jobs Report” – and the headline numbers continue to trend in the right direction. Total nonfarm payroll – an employment measure that excludes farm workers, private household employees, and non-profit employees – increased by 661,000 jobs in September, and the overall unemployment rate fell from 8.4 percent to 7.9 percent.
The chart above details the change in total nonfarm payroll, and the visual paints a striking picture: employment is recovering, but at a steadily declining pace. The U.S. lost 22.1 million nonfarm payroll jobs in March and April, and in the five months since our April trough a little more than 50 percent have come back.
Where has the recovery happened, and why is it slowing? The chart above details the change in temporary layoffs vs. permanent job losses from the beginning of 2020 until now, and clearly the most significant strides have been made in workers on temporary layoff returning to work. People returning to work is a good sign that businesses are not only reopening, but that demand has been high enough for thousands of workers to be recalled by their employers. Unfortunately, with each passing month the number of permanent job losers creeps upward, making the topline unemployment rate stickier and less likely to see the big declines we’ve witnessed in recent months.
Fortunately, the recovery appears much stronger in the sectors most relevant to our industry. Residential building construction continues to show positive momentum, with employment now exceeding last year’s totals following a 0.8 percent month-over-month increase. Nonresidential building construction saw a similar rate of improvement in September, but still lags last year’s employment levels by 5.4 percent. In fact, except for nonresidential contractor employment, all major relevant HVACR sectors saw positive month-over-month growth in September. Machinery manufacturing – which includes the production of HVACR equipment in addition to agricultural, construction, and industrial manufacturing – posted the strongest month-over-month increase at 1.3 percent. Although its unclear how many of those jobs were added by HVACR manufacturers, any positive employment momentum should help reduce equipment manufacturers’ $7.3 billion order backlog, which is up 8 percent from January (see graph below).
For the month ahead we expect modest improvement in the employment situation as total claims (initial claims + continuing claims) have been declining at an average weekly rate of 6 percent since August 29th. However, until the growth in the number of permanent job losers either slows or begins to decline, our overall economic outlook will remain murky.
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