Preview: Unemployment Likely to Hit 50 Year Low

05/04/2022 12:00am

(The monthly Employment Situation is scheduled for release by the Bureau of Labor Statistics on Friday, May 6th at 8:30 AM Eastern Time.)

With the economy again adding jobs rapidly in April, we will likely see a further dip in the unemployment rate. Even a 0.1 percentage point drop will bring the unemployment rate to 3.5 percent, a level reached three times before the pandemic and not previously since 1969. A 0.2 percentage point drop would give us the lowest rate in more than 50 years.

Labor Force Participation Rates Approaching Pre-Pandemic Peaks

For some reason, there continues to be confusion about the patterns in labor force participation in the recovery. Labor force participation rates (LFPR) fell sharply for most groups during the peak of the pandemic, as is typical for a recession. However, they have bounced back so that they are now approaching pre-pandemic peaks.

For prime age men (ages 25 to 54), the LFPR in March was 88.7 percent, 0.6 percentage points below the pre-pandemic peak. The LFPR for prime age women was 76.5 percent, 0.4 percentage points below the pre-pandemic peak and 0.5 percentage points above the year-round average for 2019.

The LFPR for men between the ages of 55 and 64 was 71.5 percent, the same as the year-round average for 2019. For women, the March LFPR was 59.7 percent, 0.1 percentage points above the year-round average for 2019.

The pandemic is still keeping some people from working (800,000 in March, according to the CPS), but the vast majority of the people who left the labor force have returned. The recovery in LFPR has been far more rapid than in the aftermath of the Great Recession. 

Wage Growth May be Moderating

The extraordinary wage growth of the last year enabled most workers to come close to keeping pace with the inflation that is a worldwide phenomenon. This has been especially true for workers at the bottom end of the wage distribution, who have seen extraordinary wage growth over the last two years. However, if inflation is going to fall back to more acceptable levels, the rate of wage growth will have to moderate.

There is some evidence in recent reports of this slowing. The average hourly wage was up 5.6 percent year-over-year in March but increased at a 5.1 percent annual rate when comparing the last three months (January-March) with the prior three months (October-December). There was an even sharper slowing in the pace of wage growth for production workers in leisure and hospitality from a 14.9 percent year-over-year increase to an 8.3 percent annual rate when comparing last three months with the prior three months.

Average Weekly Hours

The length of the average workweek increased substantially during the pandemic. This could be explained by employers, unable to hire more workers, getting their existing workforce to put in more hours. With the labor market becoming more normal, we may expect to see a further reduction in the length of the average workweek.

Further Reduction in Black and Hispanic Unemployment

The most disadvantaged groups benefit disproportionately from a tight labor market, just as they are hurt disproportionately by recessions. If we see another strong employment report, there should be further reductions in the unemployment rate for Blacks and Hispanics. In March, the unemployment rate for Blacks fell 0.4 percentage points to 6.2 percent, 0.8 percentage points above the pre-pandemic low. It is still almost double the unemployment rate for whites at 3.2 percent. The unemployment rate for Hispanics edged down from 4.4 percent to 4.2 percent, just 0.2 percentage points above its pre-pandemic low.

Share of Unemployment Due to Voluntary Quits

The share of unemployment due to people who voluntarily quit their jobs is usually seen as a good measure of labor market strength. It shows people’s confidence that they will quickly find another job after quitting. This share fell sharply from 15.1 percent in February to 13.0 percent in March. These data are erratic, but this drop would be consistent with some weakening in the labor market. At least some of the March drop was likely noise, but the April figure will tell us whether it may have been partially real.

Sectors With Low Wages Are Still Likely to Have Trouble Hiring

The sectors that have trouble raising pay to compete for workers are still well below pre-pandemic employment levels. Employment in nursing homes is down 241,000 (15.2 percent) from its pre-pandemic level. The sector lost another 2,500 jobs in March. Jobs in childcare rose by 6,000 in March but are still down by 117,000 (11.1 percent) from pre-pandemic levels.

Local governments added 20,000 jobs in March, but employment is still down 612,000 (4.2 percent) from pre-pandemic levels. The public sector now accounts for almost half of the job falloff from pre-pandemic levels.

Job Growth in the Leisure and Hospitality Sector

This sector was hardest hit by the pandemic and has been a source of extraordinarily rapid job growth in the recovery. Nonetheless, employment is still well below pre-pandemic levels.

The restaurant industry is by far the largest component of this sector. It added 61,300 jobs in March, but employment is still 820,000 (6.6 percent) below its pre-pandemic level. However, real restaurant sales are actually above the pre-pandemic level, indicating large gains in productivity. Job growth in this sector is likely to be slower in April.

Other sectors seeing strong jobs gains are retail and construction, both of which are already above pre-pandemic employment levels. Job growth in retail may be partly driven by a shift from online sales to traditional retail stores. Manufacturing added 39,000 in April, but employment is still down by a bit more than 1.0 percent from pre-pandemic levels.

Self-Employment Continues to be Far Above Pre-Pandemic Levels

The number of people who reported being self-employed (both incorporated and unincorporated) in March was 618,000 above the average for 2019. The fact that self-employment remains high, even as the labor market has tightened enormously, indicates that self-employment is a choice rather than an act of desperation. The monthly data in this category are erratic, but the increase in self-employment is enduring as the labor market continues to strengthen.

April Should be Another Very Good Month for Jobs

In sum, we should expect to see another very good jobs report this month. We are likely to see unemployment hit a 50 year low with further drops in unemployment for the most disadvantaged groups. The biggest question is whether we will see evidence of a slowdown in wage growth that will alleviate concerns about spiraling inflation.

 

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