March 31, 2021
(The monthly Employment Situation is scheduled for release by the Bureau of Labor Statistics on Friday, April 2nd at 8:30 AM Eastern Time.)
We should be seeing strong job gains in March and possibly some drop in the unemployment rate. The checks mostly went out after the reference week, but with infection rates dropping, more people are going to restaurants and traveling. Also, for better or worse, many state and local governments have relaxed pandemic restrictions. The effect of bad weather, which slowed job growth in February, will also be reversed with the country experiencing more typical March weather. The relief package also likely had some effect on state and local hiring, as governments could act knowing that the money was on the way, even if they had not yet received checks from the Treasury.
Hourly Wage Growth and Productivity
The size of the American Rescue Plan Act has left most analysts concerned about inflation. Two big factors determining the risks will be the rate of wage growth and the rate of productivity growth. Wage growth has actually held up reasonably well through the recession. The average hourly wage grew at a 3.3 percent annual rate comparing the last three months (December, January, February) with the prior three months (September, October, and November). It will be important to see the extent to which the pace of wage growth accelerates as the labor market tightens. (This figure largely reflects actual wage growth, as the changing composition of the workforce changed little over this period.)
The other side of the story is productivity growth, and the picture here looks pretty good. Productivity grew 2.5 percent over the four quarters from the fourth quarter of 2019 to the fourth quarter of 2020. This is more than a full percentage point higher than the average over the last decade. If this continues, it will allow considerably more rapid wage growth without inflation. With projections of first quarter GDP around 5.0 percent and hours growth near 2.0 percent, it appears that strong productivity growth is continuing, at least for now.
Long-Term Unemployment
An extraordinarily large share of unemployment in this recession has been long-term (more than 26 weeks). This means the same people have been unemployed for much or all of the recession. It will be important to see if this share begins to drop as the labor market continues to improve. Of course, many of the long-term unemployed do drop out of the labor force, so this question is directly connected to labor force participation rates. We should expect to see at least some rise in labor force participation rate in the March, with further increases over the rest of the year as the recovery picks up steam.
Temporary Layoffs
The share of the unemployed who report being on temporary layoff has been extraordinarily high throughout this recession. It did fall sharply from 27.0 percent in January to 22.3 percent in February, which would still be high compared to prior recessions. This figure is likely to fall further in March as both some unemployed workers get called back to their jobs, and others give up hope of returning to their former employer.
The share of unemployment due to voluntary quits has also been extraordinarily low in the recession. It rose 0.6 percentage points in February, but at 7.0 percent, it is still extraordinarily low. If the passage of the rescue package is increasing workers’ confidence in their job prospects, we should see a further increase in March.
Jobs in Construction and Manufacturing
The construction and manufacturing sectors have both seen weak job performances over the last two months. Construction employment in February was 60,000 below its December level. Manufacturing employment was just 7,000 higher. Clearly, bad weather was a big factor in both industries. It is likely that we will see a big jump in March, which will be largely making up for the weak growth of the prior two months.
State and Local Government
State and local government employment is still down more than 1.3 million jobs since last February. We will likely see good growth in these sectors in March, as governments knew that they would soon be getting money from the federal government. Also, many schools were restarting in person instruction, which likely meant that teachers who had been laid off got called back.
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