Job Market Nears Pre-Pandemic Unemployment Levels
The latest unemployment numbers came out last week. The U.S. is now closing in on matching pre-pandemic unemployment levels. March unemployment fell to just 3.6%, with the Bureau of Labor Statistics (BLS) reporting nonfarm payrolls increased by 431,000 in March 2022. The unemployment rate had reached a low of just 3.5% in February 2020 before the pandemic. That said, there are still about 1.6 million fewer people employed than at that time as the overall labor participation rate has fallen from 63.4% in February 2020 to 62.4% last month. That difference, when looking at the overall population, comes out to about 4.6 million workers that dropped off the labor rolls. The good news is that the labor force participation rate has been creeping back up since bottoming out at 60.2% in April 2020. But the degree to which that trend will continue to play out is a big question mark.
First, there was a spike in early retirements at the front end of the pandemic. Research from the Federal Reserve indicates that just over three million American workers in their early 60s opted for early retirement when initial layoffs and furloughs exploded in the wake of lockdowns. What is harder to measure is where the other +/-1.6 million workers went. Many of them landed in the gig economy—one study by JPMorgan Chase indicated that as many as 19% of gig workers were receiving jobless benefits in July 2020. This ended up being the safety net for a lot of impacted workers; DoorDash added nearly two million new drivers during the first 6.5 months of the pandemic (with women accounting for a larger share of those jobs than men). Hiring spiked across all of the food delivery platforms from Instacart to Uber Eats. There is no consistent and reliable data source for how gig economy drivers have returned to the workforce, but one thing is certain. Rising fuel prices and the continued strength of the U.S. job market is likely to lure more of these workers back, but it won’t be enough to deal with existing worker shortages.
Of course, not all employment categories have felt the same impacts. Office-using employment (the financial activities, information, and professional and business services categories) has increased by 698,000 since the pandemic. And, as surprising as it may seem, retail employment has grown (+266,000 jobs) since the start of pandemic as has transportation and warehousing (+579,000 jobs). All other job categories are down from pre-pandemic highs, but most only barely.
The biggest job loss remains concentrated in the leisure and hospitality sector. This category includes hotel, amusement park and restaurant workers. While overall we are down 1.6 million workers from before CoVid-19 lockdowns, employment in these fields has fallen by 1.4 million.
Yet, according to the BLS as of February 2022 (the latest data currently available), there were 1.7 million available leisure and hospitality sector jobs. The challenge is clearly a shortage of workers. Incidentally, though retail employment has grown over pre-pandemic levels, there were 1.1 million available jobs as of the last Job Openings and Labor Turnover (JOLTs) Report. In fact, every category of labor with the sole exception of mining & logging had more currently available jobs than the number of workers displaced by the pandemic. The retail sector had 1.1 million jobs available, while the greatest shortage was for office-using employment. The three categories that define that sector had a combined 2.7 million available jobs.
This, of course, has helped to drive strong wage growth (5.6% year-over-year as of March) and has been a contributing factor to inflation. But the other big economic data release of last week were the inflation numbers. Those jumped 6.4%, meaning that the cost of goods is outpacing increased wages. All of which is starting to impact the retail sector in terms of slower foot traffic. The likelihood is high that when final March 2022 retail sales numbers come out next week that growth, while remaining positive, will show a clear trend of cooling.
In the meantime, current labor conditions could potentially result in the Fed being more aggressive with interest rate hikes to curb inflation. This would slow the economy at a much faster pace, potentially taking inflation down a couple of notches. It also will slow the job market, which at this point, is likely a good thing. Unfortunately, it also will likely slow the record run that retail sales have been enjoying the past 18 months. All of this, of course, assuming that the Fed will be able to walk the fine line between slowing inflation and not crashing the economy.
See you next week.