The Labor Market Is Healing, but More Slowly Than Expected

June 10, 2021

GDP growth turning positive in the first quarter, May unemployment down to 5.8% from 14.8% in April 2020, and the S&P 500 reaching a new all-time high in May are all signs of economic recovery. More than 22 million jobs gained over the past 10 years were wiped out by COVID, and as of May, 13 months after the April 2020 bottom, 66% of those jobs have been recovered. While the same degree of recovery took 22 months following the Global Financial Crisis of 2008, the recent increases in payroll have actually fallen short of expectations.

Nonfarm payrolls increased 559,000 in May, falling below expectations for 675,000. This follows an even larger miss in April, when an increase of 278,000 jobs fell well below expectations for 1 million.¹ At the same time, the number of job openings has mounted to 9.3 million,² a record high and 2.3 million more than before the pandemic. Labor supply is not keeping pace with demand. According to the May Consumer Confidence Survey, 46.8% of consumers — up from 36.3% — say that jobs are “plentiful,” and only 12.2% — down from 14.7% — say that jobs are “hard to get.” The labor participation rate is down to 61.6%, the lowest level since 1976, excluding the recent period since the coronavirus outbreak.

From here, vaccination rates, wage growth, and the expected September expiration of additional unemployment benefits will dictate employment trends. Jobs progress will in turn influence how the Federal Reserve approaches raising interest rates and tightening monetary policy. Meaningful progress has been made, and these factors, among others, will continue to shape the economic recovery.

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¹ Bloomberg
² As of April, latest available