Labor market indicators show mixed bag of improvement, stagnation and retraction
U.S. Unemployment Rate, Jan. 2020 - Apr. 2021
The April Employment Situation report from the Bureau of Labor Statistics (BLS), released May 7, signaled potential labor market stagnation or retraction across several indicators, with others showing improvements. Compared to the strong growth experienced in March 2021, April non-farm payrolls increased by a marginal 266,000 jobs. The April job gains also lie in stark contrast to estimates of increases between 700,000 to 2 million, released earlier in the month.
Although the number of persons employed increased, the April 2021 unemployment rate experienced a slight backslide, increasing 0.1 percentage points to 6.1 percent. The increase in the unemployment rate is the first retraction in recovery this indicator has experienced in the past 12 months, signaling a potential stagnation.
Despite the contradictory positive outcome of increased nonfarm payrolls and the negative outcome of a higher unemployment rate, the number of unemployed persons remained essentially unchanged in April – now 4.1 million persons higher than pre-pandemic levels. Though these indicators seem at odds, further analysis reveals other factors at play, such as the labor force participation rate. A comprehensive look at the labor force data shows that the increase in the unemployment rate is not a cause for concern. Most indicators point toward measured optimism that the labor market may continue to grow in the coming months.
Local government jobs experienced marginal gains in April but remain 952,000 jobs short of February 2020
Local Government Employment Levels, 2006 – Apr. 2021
Local government employment experienced marginal increases in April (+32,000), primarily driven by education-related employment (+31,100) as schools continue to reopen across the country. Non-education local government employment increased by a negligible 600 jobs in April. Overall, local government jobs constitute 11.6 percent of all jobs left to recover to pre-pandemic levels, increasing from March’s 11 percent. Local government employment remains 952,000 jobs below pre-pandemic levels, as do both education-related jobs (610,800) and non-education jobs (341,900).
Local government employment has historically lagged behind broader economic recovery. The period following the Great Recession took 133 months (11 years and two months) for local government employment to return to pre-recession levels. However, with the passage of the new American Rescue Plan Act in March, counties eagerly await funding and guidance, which will help bolster local government employment prospects and drive economic recovery.
Other key indicators point toward recovery ahead
National Labor Market Indicators at a Glance, 2020 – Apr. 2021
As alluded to earlier, labor market indicators must be analyzed with a holistic approach Though the slight increase in the unemployment rate could signal stagnation, this change could in part be attributed to the increase (0.2 percentage points) in the labor force participation rate. Roughly 430,000 individuals entered the labor market in April. The labor force participation rate compares the active workforce in the labor market to the population. Though this indicator remains 1.6 percentage points lower than pre-pandemic levels, the recent increases signal returning workforce confidence in the ability to find employment. As confidence increases and individuals subsequently enter (or re-enter) the labor market, labor force participation increases. However, the boost in the number of individuals looking for work can also offset unemployment rates if the number of jobs gained in a particular month fall below the number of entrants to the labor market.
Alongside labor force participation, other indicators point toward recovery on the horizon. Workers who were employed part-time for economic reasons decreased by 583,000. These workers would prefer a full-time job but work part-time until they can find full-time work. Thus, this decrease demonstrates increased economic activity since many of these part-time workers could transition to full-time positions. Another telling indicator is the number of employees unable to work because their employer closed or lost business due to the pandemic. The indicator decreased from 11.4 million in March to 9.4 million in April.
Furthermore, the number of people prevented from looking for work due to the pandemic decreased by almost 1 million (from 3.7 million in March to 2.8 million in April). These changes are signs that the pandemic is beginning to lose its grip on the economy. Even teleworking saw a decline of almost three percentage points (from 21 percent in March to 18.3 percent in April) as more employees return to in-person workspaces. As vaccination rates increase and governments loosen restrictions, these recovery trends will continue to bring jobs and workers back into the economy.
Most major sectors remained unchanged at the industry level, neither losing nor gaining a substantial number of jobs in April. Most notably, Leisure and Hospitality saw the most significant gains (+331,000) as pandemic-related restrictions relaxed. However, the sector remains 2.8 million jobs below its February 2020 level. Financial Activities and Social Assistance also saw slight increases of 19,000 and 23,000, respectively. On the other hand, Professional and Business Services lost the jobs in April, driven by a 111,000 decline in Temporary Help Services. Transportation and Warehousing jobs also decreased as Couriers and Messengers lost 77,000 jobs, as did Manufacturing (-18,000) and Retail Trade (-15,000). Despite various gains throughout the pandemic, nearly every sector remains well below pre-pandemic levels.
Just as industries saw mixed signals from April’s employment situation, so too did demographic groups – though by much more nominal margins. The unemployment rate for men and Black individuals increased by 0.1 percentage point each. In contrast, unemployment rates for women, Asian individuals and white individuals decreased by 0.1, 0.3 and 0.1 percentage points, respectively. For individuals of Hispanic or Latino ethnicity, the unemployment rate remained the same as in March at 7.9 percent – the second-highest rate amongst all demographic groups, only behind Black individuals (9.7 percent).
The economic outlook remains largely positive, but expectations are measured
Although April’s labor market indicators sent mixed signals about the current state of the labor market, the economic outlook can be characterized as measured optimism. Last week, the Bureau of Economic Analysis (BEA) published advanced estimates of key quarter one business cycle economic indicators. As Moody’s Analytics notes, among the highlights, is growth in real economic output (gross domestic product – GDP). The measure increased at a 6.4 percent annualized rate – nearly closing the gap between losses due to the pandemic in the prior quarters. Moreover, real consumer spending increased by 10.7 percent (annualized rate), stimulating economic activity and driving recovery efforts. Real business fixed investment also grew by 10.1 percent (annualized rate) and real residential investment increased by 10.8 percent (annualized rate). All this to say, April labor market indicators may have fallen short of estimates and goals. Still, as the nation further increases the vaccination rate and moves into the summer months, which typically have higher economic activity, the outlook appears to be positive.
Moody’s projects that the economy will recover over 7 million jobs by the end of the year, with a return to pre-pandemic employment levels by the end of 2022. Real economic output (GDP) is expected to close out the year with a 6.4 percent increase (throughout the entirety of the year) and continue to grow by about 5.3 percent in 2022.
Additionally, about $1.6 trillion in federal fiscal assistance will soon be paid out by the federal government, including $65.1 billion to county governments under the State and Local Fiscal Recovery Fund (a part of the American Rescue Plan). These funds will help counties, who are uniquely positioned to drive economic recovery, further support local communities in responding to the pandemic.
The combination of positive economic signals from quarter one and the optimism derived from anticipated federal assistance are prime drivers in this overall optimistic outlook. This optimism has manifested in the April Employment Situation through an uptick in the labor force participation rate, increased employment figures and strong indicators of the pandemic’s waning impact on the labor market. However, April’s report also serves as a reminder that the economy is unsteady and still a long way from recovery.Standard