The Unemployment Report, Economic Transformation Before Our Eyes
I’ve been looking at the BLS unemployment data regularly since before the 2008 recession, and I watch the shift in jobs from industry to industry. Why? It shows us how the economy is changing and teaches us how to plan our careers, our hiring, our training investments, and the future lives of our children.
In the latest unemployment report we saw the “most striking” change in the economy during my lifetime. Not only are we operating at 14.7% unemployment, but the percentage of people looking for work is at a 40 year low (perhaps due to generous benefits) and most industries are under stress. What does it all mean?
This Is Not Simply A Recession: It Is An Economic Transformation
The message in this data is simple: while many jobs have been halted (or furloughed), this is not an economic recession. Rather it is a business transformation, one that will drive change throughout the economy. In other words, people did not stop going to restaurants, hotels or planes because the economy slowed: they simply took their money and said “I’m staying home until it’s safe.”
The result is a business slowdown, but as you’ll see it’s really much more. Companies that can position themselves for the “next phase” of business are growing, and these are the jobs that will be created as a result.
I will explain more about what this means, but first let’s look at the data.
The Jobs Data by Industry and Workforce Segment
I analyzed the jobs lost from February through April, which shows the change in employment caused by the pandemic. And this type of analysis lets us see the biggest trends. What you can see is which job losses are likely to recover quickly, and which are likely to be long-lasting.
1/ By far the largest segment of job losses is Food Services. 5.9 Million of the 21 Million jobs lost are in this segment. These are all the jobs in restaurants, cafes, cafeterias, and related industries. Does this show that people have stopped eating? Not at all – we are just not eating out. I believe many of these jobs will not come back for some time and will be replaced by food delivery services, packaged food delivery, and other “low touch” ways of eating.
As much as we all love to go out to eat, the idea of crowding into an overpriced restaurant, listening to loud noise and clatter, waiting for a table (and a waiter), and then not always liking the food – is not an experience that always paid off. So the social need to eat out remains high (as does fast food and other important needs), but I think this industry is going to be reinvented.
Let’s see how innovative the restaurant and foodservice industry can be. If we practice social distancing guidelines the number of seats per restaurant will be 1/2 to 1/3 what is was – so these businesses are going to have to sell packaged food, sell their high-quality food as groceries, and do other innovative things. I expect a lot of good ideas to come here, but I don’t sense we are going to rush back to restaurants again. Stories in Atlanta (a test case for return to work) are proving this out.
By the way, home food delivery is a proven growth industry now. Ocado, one of the pioneers in scalable grocery delivery (the company has built a highly automated robotics system for picking and packaging), is now nearing $2 Billion in revenue. Instacart’s revenue is somewhere near 1 $billion, and the company has created more than 300,000 new jobs.
2/ The second biggest category of job loss is Healthcare and Social Services. What? Yes, this is what the data shows. 2.6 Million jobs were lost here, and they fall into some surprising areas.
More than 520,000 dentists are out of work. More than 259,000 physicians are out of work. And a massive number of other healthcare practitioners have lost jobs. Why? People are afraid to go to the doctor’s office or hospital unless they have the virus, and dentists are starting a campaign to get them back. Many hospitals tell me demand is plummeting and doctors are now delivering services through tele-medicine at 10-100X the rate they were before. The CHRO of a large healthcare network told me he thinks this is an existential change – tech-enabled doctoring has arrived.
There is also a massive job loss in social services. More than 650,000 such jobs went away including 355,000 jobs in child care (now taking place at home) and 275,000 or more in other social service jobs. These are people who help others, but they’re unable to work because they do their jobs in groups. I have to believe these jobs will come back in new ways: they are not structurally gone.
3/ Retail jobs are a close third in loss. A total of 2.1 million retail jobs disappeared (phone stores, department stores, clothing stores, etc.) and this includes 759,000 clothing retail jobs, 350,000 auto dealer jobs, 218,000 furniture store jobs, and more than 500,000 jobs in sporting goods stores and other types of stores.
I know that nurseries and hardware stores are doing well, but these other stores are just too “scary” for people to visit. Personally I think a lot of this business will continue to go online, but we can expect a lot of these jobs to come back as companies like Macy’s and Nordstrom’s work very hard to build more distanced service in the store. (Most are putting up plexiglass in front of the cash register for example, and we can expect “walk-out” purchasing technology to take off).
Is this job transformation? Probably not – buying clothing online has already become huge, but there is a huge need to see things, try them on, and talk with a salesperson when you buy an important item – so many of these jobs will come back. I believe “checkout-less” stores will explode, and let’s not ignore the future of VR-driven e-commerce, which makes online buying even better.
4/ Real Estate, Administrative and Waste services come next. We lost 1.8 million jobs in this mixed set of jobs. This includes about a million jobs lost in temp services (these are the first to go) and more than 500,000 jobs in real estate sales, administration and management, security services, and other jobs that help buildings stay open.
One could argue that the entire real estate market is now in transformation. As I described in my last article, working at home is going mainstream for many white-collar workers (Google, Facebook, Twitter, and many tech companies are telling people to stay home all year and maybe next year too). So I have to believe the net market for office space is going to shrink for a while.
Many of these administrative, sales, and operations positions will move to new roles as these people realize that their skills are easily transferred into new industries. People who know how to manage real estate or buildings and facilities can often work in finance, IT, and other transportation jobs. To me, this is a big transformation taking place, as companies and building contractors work hard to reinvent what the “workplace” really means.
We have a whole working group in our Big Reset Initiative focused on “the workplace experience of the future” and we’ll publish their findings in the coming months.
5/ Arts, Entertainment, and Recreation were similarly destroyed. This industry, which includes media and entertainment, typically makes up 9-10% of the economy (there are about 16 million jobs here typically). About 2.5 million of these were turned off like a spigot. This is a huge drop, with almost half the jobs in sports, performing arts, gambling, amusements, and recreation turned off. This also includes more than half the jobs in museums and other arts endeavors, and 221,000 jobs in the movie industry halted (about half).
This, to me, is another part of the accelerated shift to a digital life. Many of these companies (Disney, AT&T, Comcast, the NBA) are well aware of the enormous growth in digital entertainment and they are betting big on this future. That said, people really do love amusement parks, gambling, sports, and movie theaters – so this latent demand is being unmet. While VR may help a lot here over time, this kind of entertainment will return in some form within a year or two.
Again, as I discussed in restaurants and hospitality, a lot of new protocols and procedures are going to be needed. I’d say this is another dose of gasoline in the fire of digital entertainment, fueling even more investment in new types of sports, movies, games, and other online activities.
6/ Professional Services and White Collar jobs were lost. Yes, this pandemic is impacting those of us who sit around and read, type, and talk all day too. The US economy has become a services market, with about 21 million jobs (14% of the economy) in this segment. It’s huge. All the designers, salespeople, managers, software engineers, marketing people, accountants, lawyers, scientists, and administrators fall into this segment.
Well, 2.2 million of these jobs disappeared (about 10%). While the percentage is not as high as other segments, it’s a big number. So it’s highly likely that some of you reading this are out of a job. Human Resources professionals are not getting laid off, by the way, and most of my research shows that job openings in HR are slightly down from last year but still strong (HR is badly needed to sort out the mess we’re in). But as in all downturns companies reduce staff in general so there are plenty of white-collar workers out there hanging their own shingle.
The silver lining for these people is that gig work is exploding. In my research last year I found that almost 40% of all US workers do some type of gig work, and that percentage will go up again. So this unemployment trend will push gig work even harder. (As I said in my last few articles, the Future of Work has arrived – stop looking for it, it’s right in front of you.)
The biggest challenge for white-collar workers is maintaining productivity and wellbeing while working at home. The barriers between work and life have now disappeared, so everyone has to figure out how to get work done while someone is vacuuming, kids are playing, dogs are barking, and the video camera seems like it’s always on. Quite a new world we live in.
7/ Other big job losses to consider. We lost almost 40% of the jobs in truck and ground passenger transportation. This is obviously due to the cocooning we’re doing at home (forced but also becoming more likable). We lost 139,000 jobs in air transport (37% of the jobs), which is a small number but a very high percentage. Airlines and airports are going through a new reinvention of travel, and soon enough we’ll have testing, temperature sensors, and sanitized aircraft to fly. And maybe the middle seat will just be “blocked out” or maybe the seats could get wider? And both Uber and Lyft are creating new protocols to encourage us to get into the car.
The transportation industry will transform, and we will make cities better. Cities that built bike lanes and green spaces are finding them jammed now, so the transformation of cities will accelerate. Mayors in cities are doubling down on strategies for biking, walking, and public space right now. The Mayor of Milan has created a huge program to accelerate the transformation to walking, biking, and city recovery. My city (Oakland) has removed miles of street lanes to build bike lanes, and now it’s paying off. (Read Janette Sadik-Khan’s book to really understand this amazing trend.)
A million jobs in construction were lost, primarily in trade contractors (700,000) but also in residential. This is 17% of the jobs in that segment, and I think a lot of these folks may be out there helping you build a new fence or patio while you work at home. Their jobs will come back in time.
Let me finally mention manufacturing. For all the noise Trump has been making about manufacturing, its only 7.5% of the jobs in the US economy (we’ve automated a lot of these jobs), and we did lose 11% of them (1.3 million). While these types of stories get lots of press, their overall impact on life is less than these other segments. And many manufacturers are staying open and thriving (pharmaceuticals and healthcare products, paper products, sanitary, and cleaning products).
The problem we have in manufacturing is that the jobs are more specialized every year, and companies need apprenticeships and technical skills to hire these people. I believe the manufacturing “transformation” in this country is well on its way (look at how fast Ford geared up to build ventilators), we just have a never-ending problem of jobs being in “the wrong place at the wrong time.” This problem would be solved with a better healthcare system (people could afford to quit and move) and a higher average standard of living, and maybe we’ll revisit that topic after this year’s election.
What Does All This Mean?
I spend a lot of time with HR leaders and have some friends who are economists so I have some thoughts on this topic.
First, it’s clear that “digital transformation” is happening before our eyes.
It isn’t something to “do” it’s something to “take advantage of.” In other words, every product and service we sell can now be digitized in some way, and ditto every part of an employee’s job (or experience) can be digitized too. And now you have the budget and incentive to do it.
I mentioned the telemedicine trend above. Telemedicine is easier, less expensive, and far safer than going into a doctor’s office. And now insurance companies are starting to pay for it. The CHRO of one of the country’s largest healthcare providers told me he is training all their care providers to get comfortable with telecare.
Imagine the impact of “automated checkout” in retail. You could walk into a store, shop, get help, and then just leave. No need to have someone handle your goods, take your credit card, or ask you for information face to face. This will be huge.
I do believe VR will grow exponentially. Training, shopping, and entertainment in VR is exceptionally satisfying. My experience talking with Wal-Mart, JetBlue, FedEx, Verizon and others has convinced me that VR will be a big part of our future. Oculus headsets are around $300 today and new versions are coming.
Consider this: I just talked with Derek Belch the CEO of STRIVR (Immersive Learning). One of his clients called and said “I was spending $50 million a year on face to face travel, that number is now zero. How do I spend a few million with you to create a virtual experience?”
Sales, service, and consulting is now done digitally. New tools that let you do virtual whiteboards, group video meetings, and send online proposals with video and audio are everywhere. We have delivered several in-depth strategy sessions for global clients and I feel comfortable doing this at scale. The old days of sitting in a client’s office for weeks and having day-long meetings are numbered. And one of our clients told us they just finished a two-week session for their sales teams on how to create rapport and sell online.
There is a new breed of WorkTech coming. Products like Microsoft Teams, Workplace by Facebook, Slack, and 15Five are revolutionizing the work environment. I am now starting to talk with a new breed of vendors who bring together communications, video, data management, and HR software together, which I believe will revolutionize HR tech. You can read more about this in my 2021 HR Tech report coming this Fall. (I call this trend WorkTech, the blend between productivity tools and HR.)
Second, we must realize that this is not a “financial recession” but rather a “change in demand” caused by the pandemic.
While companies are struggling to maintain cash flow, I believe demand for these services will quickly shift. People are still eating, they want entertainment, and they want to travel – our companies just have to transform the offerings to make them “safe.”
This means we are not in a financial recession, we are in an explosively fast business transformation. Not only are we transforming the customer experience, we’re transforming our offices, plants, workspaces, and products. Demand for jobs at Amazon.com, Costco, Starbucks, Taco Bell, and other food retailers is up. How do they do this? They’ve shifted into “low-touch” delivery. My Peets Coffee shop in Oakland lets me order and walk up and take the coffee, without getting close to anyone.
In my neighborhood, most of the restaurants shut down. But within a few weeks, they started offering take-out food, delivery, and some even sell high-end groceries and food products. They’re adapting fast.
Such “low touch” business models are everywhere. In my conversation with the Food Industry Association leaders, the biggest business debate is whether delivery services will disrupt grocery chains. When you buy food from Instacart, are you Instacart’s customer or Berkeley Bowl’s customer? Time will tell.
Third, I believe the shift toward “home life” will be long-lasting.
Everyone I talk with tells me that they are enjoying talking with their neighbors, their home life is complicated but warm and close, and they are dealing with stress in new ways.
Remember the last 11 years of economic growth? Many of us were on airplanes every week, the roads were jammed, and the level of anxiety was high. Income inequality was getting worse before the Pandemic and people’s incomes were not keeping up with inflation. For many, this problem is continuing, but for others the new focus on home and health will likely continue.
Home fitness, cooking, gardening, and improvement is exploding. Peleton is now worth $10 Billion, but that’s not the big story. Remote fitness trainers, yoga mats, stretching balls, and all forms of dumbells are flying off the virtual shelves. Analysts believe this is a $100 billion industry – imagine Nike virtual exercise teams, virtual walking groups, and all the online yoga and stretching classes we can buy. We may or may not go back to the group gym, but people will keep exercising.
Home baking is clearly a big trend. My wife and I have been having a harder and harder time finding baking flour, and King Arthur’s Flour (one of the country’s leader) mentioned recently that demand increased seven-fold in the first two weeks of the pandemic. The NY Times calls sourdough starter “America’s New Pet.”
Speaking of pets, apparently, the rescue dogs are all taken now. My family now has a wonderful puppy and whenever we go for a walk it seems like everyone in the neighborhood has a new pet. The pet food, pet products, and pet health industry is booming, and there are now virtual pet trainers, breeders, and lots of new books and training to buy.
And home repair and construction is booming. Lowes and Home Depot report earnings next week, and I think we’ll see a lot of strength. In my neighborhood, there are power saws, drills, tree cutting machines, and hammering going on all day. People are realizing that it isn’t the end of the world to stay home more often. Especially when the roads are less crowded and the air is clean again.
Fourth, there is a skills revolution taking place: a shift toward human-centric jobs.
In many ways, the “fourth industrial revolution” (which I was getting tired of reading about) has already happened. We are in an information and service economy, and this means the skills in demand are skills in listening, learning, helping, consulting, advising, persuading, and other “power skills.” These are human skills and they are the skills of the future.
When you do business with Instacart because you don’t trust the grocery store, you expect the driver to buy you the right food, deliver it on time, and do it in a safe and sanitary way. We’ve turned the “product” business of selling groceries into the “service” business of selecting and delivering. Amazon, UPS, and FedEx delivery people are highly trained: not only do they have to drive, they have to pack their trucks carefully, find and deliver products, and often deal with unhappy customers or other situations.
We’ve studied this issue for several years, and even studies by LinkedIn and EMSI show that the real “skills in demand” are things like communications, adaptability, and ability to learn. IBM did a massive CEO study of skills in demand last year and found that adaptability, ability to learn, and productive time management were by far the most important. Knowing how to write software or develop AI tools didn’t even show up.
And there are jobs that demand these skills now.
According to EMSI, there are now 10.1 million jobs open in the United States, and while the openings are 23% lower than last year, that’s a lot of open positions. So you as a job seeker need help to go out and find these opportunities.
The People+Work Connect Initiative is an example of companies getting together to help “swap” jobs that require similar human skills. This is only possible because when a housekeeper loses their job at Marriott they can quickly take up a similar role in a hospital. Yes, we need technical skills, but the real transformation is in the service economy.
By the way, our Big Reset Initiative is studying the explosive growth in online learning again. People are spending a lot of time learning online, so the skills gap everyone was talking about a few months ago is being resolved even faster than before.
Economic Transformation Isn’t Easy
I”m not saying this jobs report is a good thing. It’s not. A lot of us are under economic stress and many of you are probably looking for a job right now. But in a sense, as I discuss in The Big Reset, the pandemic is nature’s way of delivering us a “business cycle” that was really overdue. According to the PWC CEO study in early 2020 44% of CEOs expected a recession of some kind – we just got something we didn’t predict.
And this recession will take time to shake out. Economists are now forecasting even worse numbers in the quarter ahead. But based on my conversations with business leaders, there is a lot of transformation going on. I believe a recovery will emerge a bit sooner than you think.
The bottom line on the job report is this: it’s shocking and paradigm-shattering. But the world is not coming to an end. The pandemic will pass and the business community is adapting quickly. Let’s try to make the best of this and we’ll emerge better in the quarters ahead.