May 28, 2021 Macro

This time is different

Despite last month's weak payroll figures, the turnaround in U.S. labor markets has been dramatic.

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Trying to predict monthly U.S. employment figures is always a bit of a mug's game.

Like many U.S. economic statistics, nonfarm payrolls are notoriously volatile, hard to interpret and subject to revisions. Surveys are conducted in the early weeks' of any given month, so that by the time the data is released, it tends to be weeks out of date. Add a (hopefully) once-in-a-century pandemic, and the sensible course these days would arguably be not to get swayed too much by any single month.

Not that any of this is likely to hold back market commentators ahead of the next release, due on Friday, June 4. The reason for the eager anticipation is last month's big miss, when only 266,000 jobs were added (compared to median expectations of about 950,000).[1] Beyond the headline figures, though, the bigger question will be how the data (and revisions to previous months, including April) fit with longer-term trends.

As our Chart of the Week shows, the Covid-induced recession has been quite unusual compared to previous downturns.

We used job openings minus unemployment, i.e. how many open positions theoretically remain when firms were able to fill all positions, they are trying to hire for with those currently categorized as unemployed. To be sure this understates underlying slack in the labor market a little by excluding people wanting a job but not categorized as being part of the labor force (For April, that would have yielded an underlying unemployment rate of 9.8% vs. 6.1% in the official release).[2] The chart highlights last spring's precipitous decline, but also the spectacular recovery since.

20210528_CotW_US Labour Market_CHART_EN_72DPI.png

Sources: National Bureau of Economic Research, Bureau of Labor Statistics, Haver, DWS Investment GmbH as of 5/25/21

Wide-spread job openings fit with anecdotal evidence of labor-market tightness, with pent-up demand skewed toward particular goods and services. At the same time, actual job numbers are still far below pre-crisis levels. This points to mismatches between job seekers and job openings. Labor supply could remain constrained for a bit longer, due to extended unemployment benefits but more so lingering difficulties in finding childcare. And while global supply chain disruptions in manufacturing will probably normalize before too long, new bottlenecks may well emerge. Figuring out just how transitory these, and any resulting wage increases will be, is likely to take more than just the next set of payroll figures.

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1. https://www.ft.com/content/62ac4a64-24ff-44dc-aa28-bbb84986c9b6

2. https://www.bls.gov/news.release/empsit.nr0.htm

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