Private sector hours are back to pre-pandemic levels.
The economy added 678,000 jobs in February, pushing the unemployment rate down to 3.8 percent. The jobs numbers for December and January were also revised up 92,000. This left the number of jobs in the economy 2,105,000 below the pre-pandemic level.
Increase in Hours Likely Pushed Private Sector Hours Above Pre-Pandemic High
With the waning of omicron, the drop in the length of the average workweek in January was partially reversed. The rise in hours combined with the jump in jobs led to a 0.8 percent increase in the index of aggregate weekly hours, the equivalent of more than 1 million private sector jobs with no change in hours.
The index of aggregate hours, which only refers to the private sector, is just 0.2 percent below its pandemic peak. With the number of unincorporated self-employed now 440,000 above the 2019 average and the number of incorporated self-employed up 220,000 from the February 2019 level (incorporated self-employed data are not seasonally adjusted), hours worked in the private sector are likely above their pre-pandemic peak.
Wage Growth May be Moderating
In the last year we have seen a pattern where wage growth in low-paying industries far exceeded the rate of wage growth overall. This seems to be continuing, although the rate of growth in the lowest paying sectors may be slowing.
Over the last year the average hourly wage overall rose 5.1 percent, but it was at a 5.6 percent annual rate when comparing the last three months (December-February) with the prior three (September-November).
For production and nonsupervisory workers, the hourly wage rose 6.7 percent over the last year, and 6.8 percent when comparing the last three months with the prior three. For production and nonsupervisory workers in retail, the hourly wage increased 7.7 percent over the last year, and at a 9.1 percent annual rate comparing the last three months with the prior three. In leisure and hospitality, the average hourly wage for production workers is up 14.3 percent over the last year, but rose at just an 8.2 percent rate comparing the last three months with the prior three months.
As a rough first approximation, a 5.0 percent rate of wage growth, combined with the 2.3 percent rate of productivity growth we have seen the last three years, translates into a 2.7 percent annual inflation rate.
Jobs in Many Sectors are Close to or Above Pre-Pandemic Levels
The strong job growth in recent months has pushed employment in many sectors to pre-pandemic levels. Employment in retail increased by 37,000 in February and is now 104,000 above its pre-pandemic level. Airlines added 6,900 jobs in February. Employment in the sector is now up 14,400 from February 2020.
Construction added 60,000 jobs in February, leaving employment just 11,000 below its pre-pandemic level. Manufacturing jobs increased by 36,000, but are still 178,000 down from February 2020. The auto sector was a big drag on growth in the month, losing 18,000 jobs, likely due to the semiconductor shortage and Canada convoy.
Most of the continuing gap in jobs from the pre-pandemic levels is concentrated in a small number of sectors. The health care sector, which added 64,000 jobs in February, is still down 306,000 from the pre-pandemic level. All of this is explained by a drop in employment of 398,000 jobs in nursing and residential care facilities.
Restaurants added 124,000 jobs in February, but employment is still down 824,000 jobs from February 2020. This is despite the fact that real sales are above pre-pandemic levels. The arts and entertainment sector added 28,000 jobs, but is still 263,000 below its pre-pandemic level.
State and local governments continue to have difficulty hiring. They added 24,000 jobs in February, but are still down 695,000 from pre-pandemic levels. This is almost one-third of the total shortfall in jobs.
Largest Drop in Unemployment is for Most Disadvantaged Groups
As is typically the case when the labor market tightens, the most disadvantaged groups see the greatest benefit. That was certainly the case last month. The unemployment rate for Blacks fell by a 0.3 percentage point to 6.6 percent, 1.2 percentage points above the pre-pandemic low. For Black teens the drop was 2.9 percentage points to 17.8 percent, 2.8 percentage points above pre-pandemic low and 7.9 percentage points above the low hit last June.
The unemployment rate for Hispanics fell by a 0.5 percentage point to 4.4 percent, a 0.4 percentage point above the pre-pandemic low. The unemployment rate for workers without a high school degree fell by a 2.0 percentage point to 4.3 percent, the lowest on record. The unemployment for Asian Americans fell by a 0.5 percentage point to 3.1 percent, although this is still 1.0 percentage point above the pre-pandemic low.
With the Pandemic Waning, Labor Market Near Normal
There were still 1.2 million people who reported being out of the labor force in February due to the pandemic, but this is down from 1.8 million in January. This figure can explain most of the drop in labor force participation from before the pandemic. The labor force participation rate for prime age workers rose by 0.2 percentage point in February to 82.2 percent, a level not reached following the Great Recession until October 2018, although this is still down 0.9 percentage point from the pre-pandemic peak.
All of this rise was among men, who had a rise of 0.6 percentage point in labor force participation in February compared to a 0.2 percentage point drop among women. The drop in participation rates from pre-pandemic levels had been pretty much the same between men and women until this month, so this could be an anomaly.
The share of long-term unemployed (more than 26 weeks) edged up 0.8 percentage points to 26.7 percent. This is higher than normal, but far below the 40 plus percent shares in the spring and summer of last year. The share of unemployment due to voluntary quits rose to 15.1 percent, which is what would be expected in a strong labor market.
Overall, the Labor Market is Looking Very Good
The labor market has largely bounced back from the pandemic. Unemployment and employment rates are not fully back to pre-pandemic levels, but they are at the levels reached in the middle of 2018 when many economists argued we were at full employment.
Wages continue to grow at a rapid pace, with the largest gains in low-paying industries. There is some evidence of slowing, which is a positive development since wage growth at the rate we had been seeing could not be sustained without high rates of inflation.
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