March 02, 2022
(The monthly Employment Situation is scheduled for release by the Bureau of Labor Statistics on Friday, March 4 at 8:30 AM Eastern Time.)
The February jobs report is likely to show strong growth in jobs and hours, as the surge in cases from omicron faded rapidly during the month. This should mean growth comparable to what we saw in January, with the economy adding between 400,000 and 500,000 jobs. We are likely to see some increase in labor force participation, with the return of many of the 1.8 million people who reported being out of the labor force in January due to the pandemic.
The path of wage growth will be important for views of inflation. We will not see inflation fall back to more normal levels if the rapid nominal wage growth of 2021 is sustained throughout the current year and beyond. (Join Inflation Discussion with Dean Baker, Joseph Stiglitz, and Jason Furman. Thur. March 3. 10:30 AM – 12:00 PM ET. Online. Register here.)
Waning Impact of Pandemic Leading to Bounce Back in Average Workweek
The reference period for the January report came near the peak of the omicron wave. While this likely affected hiring in many sectors, it seems the largest impact was on hours. The length of the average workweek fell by 0.2 hours overall for the private sector and 0.3 hours in the leisure and hospitality sector. As a result of this drop in hours, the index of aggregate hours for the private sector fell by 0.3 percent in spite of the large increase in employment.
If omicron was the main factor in this decline in hours, we should see an increase in the length of the workweek in February. Employers have increased the length of the workweek substantially from the pre-pandemic level. The average workweek in the fourth quarter of 2021 was 1.9 percent higher than in the fourth quarter of 2019. This is equivalent to the addition of 2.4 million private sector jobs if the average workweek had remained unchanged.
Wage Growth Beginning to Slow
The pace of wage growth will be a huge factor in inflation prospects and the Fed’s policy response. It is standard to look at year-over-year measures of wage growth. This measure tells us more about what happened to wages last spring than the current state of the labor market. For this reason, is helpful to look at a more recent measure, such as the annualized rate for the last three months compared with the prior three months.
By this measure, wage growth had been accelerating slightly. Comparing the last three months (November-January) with the prior three months (August-October), overall private sector wages rose at a 6.5 percent annual rate, up somewhat from the 5.7 percent rate over the prior year. Wages in retail grow at a 5.8 percent annual rate up from a 5.4 percent rate over the last year. Wage growth in restaurants did slow somewhat, rising at a 10.6 percent rate compared to a 13.0 percent rate over the last year.
Even with strong job growth, the labor market may be weakening slightly. The four-week average of weekly jobless claims rose to over 250,000 in early February (it recently dropped slightly). It had been under 200,000 at the end of last year. This indicates a greater willingness of employers to lay off workers, despite difficulty in hiring.
Increase in Labor Force Participation
The Bureau of Labor Statistics special survey on the impact of the pandemic showed that 1.8 million people said that they were out of the labor force in January, up from 1.2 million in December. With the number of cases falling sharply in February, there should be a large drop in the number of people in this category.
If strong job growth continues, the economy should be able to absorb a big increase in the size of the labor force without a rise in the unemployment rate. But it will be important to monitor how the number of people outside of the labor force due to the pandemic changes in the month. A large drop will be a sign that we are likely to see the labor force participation rate rise back soon to its pre-pandemic level.
Strong Growth in Pandemic Sensitive Sectors
Restaurants, hotels, and the arts and entertainment categories all had healthy job growth in January. Nonetheless, employment in these sectors remain well below pre-pandemic levels, down 8.0 percent, 22.3 percent, and 11.7 percent. With the declining number of COVID-19 cases, all three should see good growth in February. Air travel is also likely to have good job growth, although the January numbers put employment in the sector above the pre-pandemic level.
Modest Job Growth in State and Local Government
Employment in the state and local government sectors, especially education, remains far below pre-pandemic levels. This is largely because these governments have difficulty raising pay to remain competitive with the private sector. Also, teaching jobs have become less attractive due to the pandemic and political pressures.
Weak Growth in Care Sectors
Employment in nursing homes and childcare were 15.0 percent and 12.4 percent below pre-pandemic levels, respectively. Both sectors showed modest growth in January. They may also show some gains in February, but unless employers can increase pay substantially, nursing homes and childcare sectors will not be able to make much progress in returning to pre-pandemic employment levels.
Further Drops in Black and Hispanic Unemployment Rates
The unemployment rate for Black workers fell 0.2 percentage points in January to 6.9 percent. However, it is still 1.5 percentage points above its pre-pandemic low. By contrast, the white unemployment is just 0.4 percentage points above the low reached before the pandemic. At 4.9 percent, the unemployment rate for Hispanic workers is still 0.9 percentage points above its pre-pandemic low.
Composition of Unemployment Is Back to Normal
The share of unemployment due to temporary layoffs exploded in the pandemic to a peak of 78.2 percent in April of 2020. It has since fallen back to less than 15.0 percent, roughly the same as before the pandemic. Similarly, the share of unemployment due to voluntary quits rose to 14.7 percent, somewhat higher than the 13.6 percent average in 2019.
The share of long-term unemployment (more than 26 weeks) fell back to 25.9 percent in January. This is well below peaks of more than 40 percent in the first half of 2021, but still more than 4.0 percentage points higher than the 2019 average.
Labor Market Looking More Like the Pre-Pandemic Period
With the number of infections dropping, we see a labor market that is still strong but much closer to normal. The big question will be whether we are settling into a growth path of wages and employment that will be sustainable through the year and beyond.
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