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Economists cautiously optimistic as unemployment rate falls to 6.9%

October marks the first month unemployment is half that of April's 14.7% spike

The U.S. unemployment rate in October hit a new pandemic low of 6.9%, down a full percentage point from September’s 7.9%, the Labor Department said on Friday. With 1.5 million people making up that one percentage drop, the department estimates that now 11.1 million Americans are still unemployed, according to the Household Survey Data.

Though September began showing signs of a decline in unemployment, after only falling a half a percentage point from August, October’s decline matched that previously seen in July when unemployment fell from 11.1% to 10.2%. October also marks the first month unemployment is half that of April’s record high peak of 14.7%.

Total nonfarm payroll employment rose by 638,000, but remains 6.6% below February’s peak.

Private employment increased by 906,000 in October, largely driven by the service-providing sector – an industry hit hardest by the pandemic – with gains in leisure and hospitality (+271,000), professional and business services (+208,000) and retail trade (+104,000).

Government employment, however, fell by 216,000 – a stat that Mike Fratantoni, senior vice president and chief economist at the Mortgage Bankers Association, chocks up to the conclusion of the decennial U.S. Census count, and the continued job losses occurring in local education jobs.

“While the U-6 and other measures of underemployment remain quite elevated, they are declining almost as quickly as the headline rate,” Fratantoni said. “That said, there was an increase in the number of workers with part-time spots who wanted full-time work, an indication that people are making tough choices to go back to work because enhanced unemployment insurance benefits have ended.”

Residential construction employment (including specialty trade contractors) posted another large increase this month, with job gains of 24,000, which Doug Duncan, chief economist at Fannie Mae, said is a welcome sign for a sector dealing with supply constraints.

“This morning’s jobs report from the Bureau of Labor Statistics continues to show that job growth, while strong, has slowed down from the more robust gains seen earlier in the recovery,” Duncan said. “The labor force participation rate grew by 0.3 percentage point, reversing last month’s decline, a positive sign of workers returning from the sidelines.”

As the nation attempts to safely open back up, 15.1 million people reported that they had been unable to work because their employer closed or loss business due to the pandemic, down from 11.7 million in September. But COVID-19 is still showing little mercy as 3.6 million Americans continued to report unemployment in October as the pandemic prevented them from looking for work.

Odeta Kushi, chief economist at First American, warned of premature optimism, saying economic recovery is beholden to the path of the virus. As COVID cases begin to rise again, Kushi said new restrictions may be ahead. 

“Six months of expansion is good news, but the deceleration in the pace of improvement signals a slowdown,” Kushi said. “The housing market has been a bright spot amid the downturn, supporting the recovery of the broader economy…Yet, the housing market continues to suffer from a significant lack of housing supply following years of underbuilding.

In the latest third-quarter GDP data, residential fixed investment (RFI), which is the measure of the home building, multifamily development and remodeling contributions to GDP, had its highest reading since 2007, Kushi noted. But despite residential construction employment climbing back to only 0.8% below its February level, supply constraints are still a threat to industry growth.

“Today’s report is not only a signal that the broader labor market continues to rebound, but welcome news for a housing market in desperate need of more supply,” Kushi said.

It is important to note that the BLS said that due to an error in misclassifying persons who were absent from work due to the pandemic, the unemployment rate should have been about 0.3 percentage point higher than reported.

As part of the Federal Reserve‘s Federal Open Market Committee statement on Thursday, the Fed detailed its goal to achieve maximum employment and inflation at the rate of 2% over the longer run. The Reserve said weaker demand and earlier declines in oil prices have been holding down consumer price inflation.

“In addition, over coming months the Federal Reserve will increase its holdings of Treasury securities and agency mortgage-backed securities at least at the current pace to sustain smooth market functioning and help foster accommodative financial conditions, thereby supporting the flow of credit to households and businesses,” the Fed said.

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