Job gains face a tougher road ahead without stimulus aid

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The battered U.S. labor market probably saw a fourth month of improvement in August, but chances of further outsize gains are diminishing without the widespread stimulus payments and small-business aid that have sustained incomes and spending.

Economists project Friday’s jobs report will show the unemployment rate dropped below 10% for the first time since March, with employers adding 1.35 million people to payrolls, a figure boosted by the Census Bureau’s hiring of about 240,000 temporary workers to help conduct a decennial count that’s been delayed by the pandemic.

August’s gains likely reflect additional rehiring from businesses that have reopened as the pandemic’s surge eased, while the expiration of supplemental unemployment benefits in July may have motivated some Americans to look for jobs.

At the same time, the improvement marks a further moderation from prior months and would still leave payrolls more than 11 million short of pre-pandemic levels, with the jobless rate almost three times as high and weekly figures showing as many as 27 million Americans claiming jobless benefits. In fact, people looking for work may be increasingly discouraged by a distressed market, limiting job gains, according to Bank of America economist Alexander Lin.

Moreover, the cuts to stimulus are seen as having a broader effect of limiting spending that supports jobs and the economy. About one in 20 small firms say they expect to permanently shut down in the next six months, according to the latest Small Business Pulse Survey by the Census Bureau.

A slew of layoff announcements by major companies including MGM Resorts International, Coca-Cola and United Airlines Holdings also implies weakness in the coming months. In recent weeks, global corporations have announced more than 200,000 job cuts or buyouts, according to data compiled by Bloomberg, suggesting that furloughs implemented early in the pandemic are becoming permanent.

Any gains in August are likely to be partially offset by declines in education jobs as many schools remain virtual, which means fewer bus drivers, cafeteria workers and teachers are needed, according to Bloomberg Economics. Some parents may leave the workforce altogether to manage child care.

Bloomberg News
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