June 29, 2021
(The monthly Employment Situation is scheduled for release by the Bureau of Labor Statistics on Friday, July 2 at 8:30 AM Eastern Time.)
In June, we are likely to see job growth that is somewhat faster than the 540,000 average of the last three months. The sectors that the recession hit hard, most importantly restaurants, hotels, and states and local governments, are likely adding back jobs at a rapid rate. However, job growth in the last category will be somewhat of a technical question, since June marks the end of the traditional school year. As a result, we typically lose a large number of jobs in the unadjusted data, while the seasonally adjusted data can show little change or even small gains.
The unemployment rate is likely to slide down another 0.2 to 0.3 percentage points. This would put the unemployment rate in the middle of the 5.2 to 5.8 percent range that the Fed had targeted back in 2012 under Bernanke. Powell pushed through a new statement on Fed targeting in 2018, in which the explicit range was removed. It shows how far Fed thinking has changed as it is now aggressively pushing for lower unemployment when the unemployment rate is already in the range that had been targeted as full employment less than a decade ago.
The number of people reporting that they are unemployed due to a temporary layoff has fallen sharply since the shutdowns last spring. It peaked at over 18 million last April. It was down to just 1.8 million in May. This is still much higher than in a normal month, but it is not extraordinary for a recession.
This drop matters for the pace of employment growth since it is much easier to rehire someone who just has to be called back from a layoff, than to find a new worker. The huge job growth numbers last summer were possible because of the large pool of workers on temporary layoffs. Now that this pool has fallen to more normal levels, it is unlikely that we can see the same sort of job growth. While we can expect job growth in the 500,000 to 700,000 range, increases of more than 1 million are unlikely.
The Long-Term Unemployed
In this same vein, an extraordinarily high share of the unemployed (40.9 percent) are long-term unemployed (more than six months). Historically, these workers have found it more difficult to find jobs. As the recovery continues, new hires will increasingly come from the long-term unemployed and people who have dropped out of the labor force altogether. This will slow the pace of job growth going forward.
Wage Growth and Weekly Hours
There have been numerous reports of employers complaining about the difficulty of finding workers. There is evidence to support this view. The rate of job openings hit a record in April. Also, we are seeing rapid wage growth, especially in low-wage sectors. For production and nonsupervisory workers in aggregate, wages increased at a 4.5 percent annual rate comparing the last three months (March, April, and May) compared with the prior three months (December, January, and February). For retail workers the rate of increase has been 8.3 percent, and for restaurant and hotel workers it has been 22.2 percent.
Rapid wage growth is likely to continue for workers in low-pay sectors in June, although the pace may slow somewhat. It will also be interesting to see the pattern in hours. If employers can’t find enough workers, they try to increase the hours for the workers they do have. Average weekly hours edged down slightly for production workers overall in May and by 0.2 hours for those in leisure and hospitality.
Shorter workweeks are not consistent with a severe shortage of workers. It will be interesting to see what happens to the length of the workweek in June.
Productivity Growth and Inflation
It is also worth mentioning that fewer hours implies higher productivity. Productivity grew 4.1 percent from the first quarter of 2020 to the first quarter of 2021. This is up from an annual rate of just over 1.0 percent in the decade before the pandemic hit.
With GDP likely to grow at a near double-digit pace in the second quarter, it looks like the rapid pace of productivity growth is continuing. No one expects the economy to sustain anything close to a 4.0 percent rate of productivity growth, but even a 2.0 percent rate should eliminate fears of inflation and also allow for rapid improvements in living standards.
Ending of Unemployment Insurance Supplements Small Factor in June Data
Most Republican governors have announced plans to end the $300 weekly unemployment insurance supplements. In most states they are also ending the special pandemic programs created for gig workers and others who would not ordinarily be eligible for benefits. The impact of these cutoffs in the June data will be very limited. Only Mississippi, Iowa, and Alaska had ended the supplements by the June 12th reference date.
Black Teen Unemployment
The unemployment rate for Black teens fell to 12.1 percent in May, by far the lowest level on record. The unemployment data for Black teens are highly erratic, so it would not be surprising to see a jump in June. Even a rise of 2.0 percentage points would still leave the Black teen unemployment rate below the previous low of 14.9 percent in 2019; and that’s more than twice the 5.1 percent rate of white teens.
There has been a big jump in the number of unincorporated self-employed workers in the last three months, with the three-month average of 9,843,000 more than 300,000 above the year-round average for 2019. These data are erratic, but it is possible that many people are finding ways to work from home for themselves instead of returning to the workplace.
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