March 02, 2021
(The monthly Employment Situation is scheduled for release by the Bureau of Labor Statistics on Friday, March 5th at 8:30 AM Eastern Time.)
The checks distributed as part of the December relief package led to strong growth in consumption in January, which will likely carry over into February. This should be a reason for expecting strong job gains, except the unemployment insurance filings remained well above the Great Recession peak throughout the month between when the January and February surveys were fielded. Nonetheless, it is likely that job growth picked up some from its weak January pace. If the pace of infections continues to slow, and Congress approves the Biden rescue package, we will likely see much stronger numbers in March.
February Hours and Productivity
Ordinarily we would expect the strong rise in consumption in January, and presumably continuing into February, to be associated with a large jump in employment in retail and restaurants. As noted, the very high level of unemployment claims indicates there probably was not a large employment gain. If that proves to be the case, and there was not a large increase in the length of the average workweek, this would mean that businesses were finding ways to increase productivity.
While higher productivity has the short-term negative effect that it means fewer jobs, over the longer term it means that the economy can support higher living standards. Productivity data is notoriously erratic. Quarterly data often jump around for no obvious reason and even annual data show unusual fluctuations. But we did see strong productivity growth in 2020 (2.5 percent, fourth quarter to fourth quarter), so we may see that continuing into 2021. Strong productivity growth should also alleviate fears about inflation.
As noted in prior reports, long-term unemployment (more than 26 weeks) has accounted for an extraordinarily large share of total unemployment. It was up to 39.5 percent of total unemployment in the January report. In most recessions it peaks just over 20 percent. (The Great Recession also saw an extraordinary share of long-term unemployment, with a peak of 44.9 percent.)
The high percentage of long-term unemployment means that rather than a larger number of people seeing short spells of unemployment, the pain is highly concentrated among workers who have been out of work through most of the recession. In the same vein, the fact that the length of the average workweek has actually increased slightly in the recession means that the employed are not sharing in the pain through an involuntary reduction in hours.
The share of the unemployed who report being on temporary layoff continues to be extraordinarily high. It stood at 27.0 percent in January. By comparison, in prior recessions the peaks were in the high teens or low twenties. These workers presumably have a strong likelihood of returning to their former job, although many will undoubtedly find that a temporary layoff has become permanent.
Wage growth had been distorted by large composition effects earlier in the recession, but these changes are no longer very important. It will be interesting to see the sort of momentum the labor market has as we begin to get the pandemic under control. For the private sector as whole, the average hourly wage increased at a 4.5 percent annual rate comparing the last three months (Nov, Dec, Jan) compared to the prior three (Aug, Sept, Oct).
Jobs in Construction and Manufacturing
Both the construction and manufacturing sectors shed jobs in January. This was somewhat of a surprise since growth in manufacturing was strong in the Fed’s industrial production index, and residential construction has been very strong in recent months. It is possible the January data was an aberration. If that is the case, we should expect to see especially high growth numbers for these sectors in February, reflecting both real growth in employment and a reversal of the January decline.
State and Local Government
The state and local government sectors have shed 1.3 million jobs since February, the vast majority of which were in education. There was a modest increase in employment in the sector in January, but we are likely to see modest declines in February, as cash starved state and local governments are forced to make cutbacks.
Asian American Unemployment Rate
Typically, the unemployment rate for Asian Americans has been slightly lower than the unemployment rate for whites. In this recession it has been running somewhat higher than white unemployment. In December, it did fall slightly below the white unemployment rate, but it them jumped 0.7 percentage points to 6.6 percent in January. While these data are erratic, this jump likely reflects a disproportionate share of Asian Americans being employed in restaurants and other pandemic-sensitive businesses. As these businesses begin to operate closer to normal, we should expect to see the unemployment rate for Asian Americans fall again.
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