Home Economic Trends Labor Market Recovery Continues but Full Recovery Could Be a Year Away...

Labor Market Recovery Continues but Full Recovery Could Be a Year Away – Robert Hughes (07/05/2021)

U.S. nonfarm payrolls added 850,000 jobs in June after a gain of 583,000 in May. April and May had net upward revisions of 15,000. The June gain is the sixth in a row and 13th in the last 14 months, bringing the six-month gain to 3.256 million and the 14-month post-plunge recovery to 15.598 million. This is still well below the 22.362 million combined loss from March and April of 2020, leaving nonfarm payrolls 6.764 million below the February 2020 peak (see first chart). If payrolls continue to grow at the average over the last six months (542,667), it may take another year to fully recoup all of the job losses.

Private payrolls posted a 662,000 jobs gain in June after a 516,000 gain in May. The two prior months had a net upward revision of 31,000. The June rise in private payrolls is also the sixth in a row and 13th in the last 14 months. The June addition brings the six-month gain to 2.872 million and the 14-month recovery to 15.584 million versus a combined loss of 21.353 million in March and April of 2020, leaving private payrolls 5.769 million below the February 2020 peak (see first chart). If private payrolls continue to grow at the average over the last six months (478,667), it would also take a year to fully recoup all of the job losses.

The breadth of gains for June was positive but still dominated by a few industries. Within the 662,000 gain in private payrolls, private services added 642,000 while goods-producing industries added 20,000. For private service-producing industries, the gains were led by a 343,000 surge in leisure and hospitality (following gains of 306,000 in May, 328,000 in April, 227,000 in March, and 413,000 in February), a 72,000 rise in business and professional services (with 33,000 in temporary help jobs), 67,000 new jobs in retail, and a 59,000 gain in education and health care services (see second chart).

Within the 20,000 gain in goods-producing industries, construction was down 7,000, durable-goods manufacturing increased by 18,000, nondurable-goods manufacturing fell by 3,000, and mining and logging industries added 12,000 (see second chart).

Despite the ongoing recovery, nearly all private industry groups still have fewer employees than before the government lockdowns. Three industries – Leisure and hospitality (down 2.181 million jobs), education and health services (down 1.028), and professional and business services (off 633,000) – are down more than half a million jobs each (see third chart).

On a percentage basis, the losses are more evenly distributed. Five of the 14 private industries shown in the report have declines of 4 percent or more since February 2020. Leisure and hospitality leads with a 12.9 percent drop since February 2020, mining and logging comes in second with an 8.7 percent loss followed by information services at 6.1 percent, manufacturing at 4.4 percent, and education and health services at 4.2 percent. For the labor market as a whole, total nonfarm payrolls and private payrolls are down 4.4 percent since February 2020 (see fourth chart).

The government sector added 188,000 employees in June, with local government payrolls rising by 124,000, state government payrolls up 69,000, and the federal government cutting 5,000 workers.

Average hourly earnings rose 0.3 percent in June, putting the 12-month gain at 3.6 percent. The average hourly earnings data should be interpreted carefully, as the concentration of job losses for lower-paying jobs during the pandemic distorts the aggregate number.

The average workweek fell to 34.7 hours from 34.8 in May. Combining payrolls with hourly earnings and hours worked, the index of aggregate weekly payrolls gained 0.6 percent in June. The index is up 10.5 percent from a year ago.

The total number of officially unemployed increased by 168,000 in June to 9.484 million. The unemployment rate rose to 5.9 percent while the underemployed rate, referred to as the U-6 rate, fell to 10.2 percent in June. In February 2020, the unemployment rate was 3.5 percent while the underemployment rate was 9.8 percent (see top of fifth chart).

The participation rate was unchanged in June, coming in at 61.6 percent versus a participation rate of 63.3 percent in February 2020. The employment-to-population ratio, one of AIER’s Roughly Coincident indicators, came in at 58.0 for June, unchanged versus May but well below the 61.1 percent in February 2020 (see bottom of fifth chart).

The June jobs report shows another strong gain in private payrolls. There were increases in most industries though most of the total gain came from just three industries. Despite the sixth consecutive monthly gain, the labor market remains well below peak measures from before the pandemic.

Other measures of economic activity generally suggest the economic recovery from the government lockdowns in 2020 is gaining momentum as the restrictions on consumers and businesses are lifted. However, the damage done by the lockdowns was severe. Not only is employment still below pre-pandemic levels, but fallout from financial burdens on small businesses that were shuttered, personal and business bankruptcies and/or increased debt burdens, and unraveling the moratoriums on evictions may still restrain future growth. Furthermore, the inability of supply to recover as quickly as demand is resulting in shortages in some areas of the economy and putting significant upward pressure on prices. The overall outlook is tilted to the upside, but fallout from the lockdowns linger.