America’s companies are struggling to hire workers back. It risks derailing the economic recovery.

San Francisco reopening
Manager Cynthia Martinez converses with guests at El Rio, located at 3158 Mission St., on Saturday, April 3, 2021, in San Francisco.

  • The labor market is on the path to recovery, but it’s not a sure thing as the economy reopens.
  • Worker shortages are hitting some businesses, and experts warn of millions of jobs permanently lost.
  • Stimulus hasn’t led to a spending surge yet, and Americans may sit on their huge savings pile.
  • See more stories on Insider’s business page.

The positive March jobs report showed a country on the brink of full reopening, with good news for the economy around the corner. But just reopening isn’t enough for a full recovery.

“There’s no guarantee that the people whose jobs have been permanently eliminated will be able to find work elsewhere,” Nancy Vanden Houten, lead economist at Oxford Economics, told Insider. “At the same time, there’s a risk that labor force participation won’t return to what it was prior to the pandemic. We might still experience shortages of workers.”

Filling the hole in the labor market will take more than reaching a 3.5% unemployment rate and recouping every lost payroll, she said. The country was adding roughly 200,000 jobs a month before the pandemic, meaning the labor market will have to get back to the February 2020 level – and then some – to reach maximum employment.

The US began that climb in earnest last month, adding 916,000 nonfarm payrolls, blowing the median estimate of a 660,000 gain out of the water. The unemployment rate fell to 6% from 6.2%, matching economist forecasts, still far above the 3.5% pre-pandemic rate.

Experts are bracing for several months of outsize job gains as consumers thaw the frozen economy. But to Vanden Houten’s point, pressures are now emerging on the supply side. While consumer demand shows signs of coming back, other signs point to an imbalance between job openings and Americans actively seeking work.

Jobless claims, however, have been volatile in recent months and give a clearer hint at deep scarring. Filings fell to a pandemic-era low of 658,000 in March but rose to 744,000 last week, signaling persistent challenges in hiring.

Supply strains and lagging cities present new challenges

Some of the world’s top economic policymakers are warning of long-term scarring of the labor force that reopening can’t address. Countries will need to “think well in advance” of what a post-pandemic economy will look like so as to add jobs where they’re going to be, Kristalina Georgieva, managing director of the International Monetary Fund, said in a Thursday video conference.

Federal Reserve Chair Jerome Powell echoed her remarks, noting that millions of Americans will struggle to find work as they acclimate to a permanently changed labor market.

“The real concern is that longer-term unemployment can allow people’s skills to atrophy, their connections to the labor market to dwindle, and they have a hard time getting back to work,” he said in the conference. “It’s important to remember we are not going back to the same economy, this will be a different economy.”

Even the businesses set to benefit most from reopening are running into snags. Staffing at full-service restaurants remains down 20%, or 1.1 million openings, from the year-ago level, according to data from the National Restaurant Association. Owners and managers interviewed by The New York Times attributed the persistent shortfall to a lack of available workers. Others said their former employees chose to stay out of the workforce and subsist on expanded unemployment benefits.

The country’s most densely populated areas are also experiencing slow recoveries, government data shows. Los Angeles and New York City held the highest February unemployment rates of the 51 major metropolitan areas: 9.9% and 9.8%, respectively. This kind of high unemployment in densely populated cities is bad news for the economic recovery, as the longer that the engines of the pre-2020 economy lie dormant, the further away lies a return to a kind of “normal,” unless a new normal rapidly takes its place.

The stimulus spending boost could be smaller than expected

The government acknowledged risks associated with weak spending and acted on them. The $1.9 trillion stimulus measure approved by President Joe Biden in March was the largest relief package to hit the US economy since the CARES Act was passed in the first months of the pandemic. Americans received support in the form of stimulus checks and bolstered unemployment benefits, two boosts set to supercharge spending and overall demand as the economy reopened.

Recent studies suggest that boost may not be be as potent as anticipated. Stimulus check recipients spent just under one-quarter of their latest relief payments, according to researchers at the Federal Reserve Bank of New York. That’s less than the share spent from the CARES Act checks or the $600 payments issued in January.

About 42% of the payments were saved, the highest percentage of all three stimulus checks. Though those savings can be unwound over time, they do little to aid the recovery in the near term. The remainder of the checks is expected to go toward paying down debts.

“As the economy reopens and fear and uncertainty recede, the high levels of saving should facilitate more spending in the future. However, a great deal of uncertainty and discussion exists about the pace of this spending increase and the extent of pent-up demand,” the team led by Oliver Armantier said.

Stimulus passed throughout 2020 already buttressed Americans’ savings, and there’s been little sign of that cash being put to use. Peoples’ savings grew by $1.6 trillion since last March, according to the New York Fed, but that sum is largely staying in bank accounts instead of moving throughout the economy.

Americans who held onto their jobs haven’t increased their spending activity even though their savings increased, the Fed researchers said in a Monday blog post. Limitations to how much people can dine out or go on vacation will also curb a surge in consumer spending.

“It is certainly possible that some of these savings will pay for extra travel and entertainment once the COVID-19 nightmare is behind us, but our conclusion is that the resulting boost to expenditures will be limited,” the team said.

Outlooks remain strong. Banks are forecasting the strongest economic growth in decades, and the March payrolls report bodes well for near-term job gains. The president’s $2.3 trillion infrastructure plan promises to create millions of new jobs if it can win ample bipartisan support.

But the path to a fully healed labor market remains riddled with downside risks. Trends in worker availability, consumer spending, and permanent scarring will determine whether the country can stage one of the fastest economic recoveries in history.

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Avocado toast will save the economy

avocado toast
Millennials are set to drive restaurant spending during the economic reopening.

  • Restaurants are making a comeback.
  • March’s jobs report smashed expectations, adding 916,000 against a 660,000 estimate, and dining led the way.
  • Led by dining, leisure and hospitality added 280,000 jobs, so avocado toast and the like should lead to a lot more hiring.
  • See more stories on Insider’s business page.

The economy really began to reopen in March, and restaurants led the way.

The US economy added 916,000 jobs in March, trouncing economic forecasts that predicted that number would look more like 660,000 jobs. The leisure and hospitality industry not only drove nearly all of February’s jobs gains, it accounted for roughly one-third of March’s upswing. With 280,000 payroll additions last month, it added more jobs than any other sector.

Leisure and hospitality consists of arts, entertainment, and recreation, ranging from performing arts and museums to amusement parks. It also includes accommodation and food services, which contributed to 215,000 of the sector’s added payrolls in March. Food services and drinking places fueled most of these additions, with 175,000 new jobs alone. It’s becoming clear that eating out will be very important for the economic recovery.

While restaurants made huge job gains last month, the sector will also need Americans willing to spend on dining out for its recovery – along with that of the wider American economy.

Americans seem to have already started doing that. For the seven days ending March 27, spending on restaurants and bars was up a whopping 200% year-over-year, per Bank of America card data. The more representative two-year change still showed an 11.9% increase. Overall, BofA found total card spending up 82% year-over-year and up 20% over two years for the period, signaling that trillions of federal stimulus are working.

Of course, with restaurants come things like avocado toast, a luxury long used as a metaphorical stick to beat the millennial generation with, perpetuating the narrative that this frivolous generation isn’t focused on the right things financially. While that’s not quite true, it is the case that millennials ate out more and spent more eating out than any other generation prior to the pandemic. They’re on track to be the biggest food and beverage spenders by 2030.

High-earning millennials saw a lot of excess cash build up in their savings accounts during the pandemic. That puts them in prime position to cash out on a favorite experience they’ve been deprived of for a year.

They’ve already begun fueling New York City’s indoor dining scene when restrictions were lifted and splurged while doing so. Millennials shelled out for high-priced items like steak, wine, and tasting menus, sending check averages and tips on the climb, Bloomberg’s Kate Krader reported.

It turns out the economic reopening – and recovery – will taste like avocado.

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The economy added almost 1 million jobs in March, but 14.3 million people are still jobless

Coronavirus movie theater
Moviegoers shop at concessions before the movie “Godzilla vs. Kong” on the reopening day of the TCL Chinese theatre during the outbreak of the coronavirus disease (COVID-19), in Los Angeles, March 31, 2021.

  • The March jobs report trounced forecasts, but some unemployment gauges show a steep climb ahead.
  • The “real” unemployment rate used by Fed Chair Powell and Treasury Secretary Yellen fell to 8.7% from 9.1%.
  • The measure includes misclassifications and workers who dropped out of the labor force since February 2020.
  • See more stories on Insider’s business page.

The March jobs report was a hugely positive surprise.

The Bureau of Labor Statistics said Friday that 916,000 nonfarm payrolls were added last month. That compares to the 660,000 expected by economists surveyed by Bloomberg and an upwardly revised gain of 468,000 jobs in February. The headline unemployment rate fell to 6%, matching the consensus forecast.

The data signals that the $1.9 trillion stimulus passed in March and gradual reopening drove a strong rebound for the labor market. Leisure and hospitality businesses – those hit hardest by the pandemic and related lockdowns – counted for one-third of the month’s additions. Construction firms added roughly 110,000 payrolls after hiring contracted during the prior month’s harsh storms.

Still, alternative metrics show there’s plenty of progress to be made before the economy fully retraces its pandemic-era losses. Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen have touted a “real” unemployment rate that includes workers that have been misclassified as having a job while they’re on pandemic-related furloughs and Americans who dropped out of the labor force since February 2020.

By Insider’s calculations, that rate fell to 8.7% in March from 9.1%. That level suggests 14.3 million Americans are still jobless.

Separately, the Bureau of Labor Statistics’ broader read of nationwide unemployment remains at worrying highs. The U-6 rate – which includes Americans employed part-time for economic reasons and workers only marginally attached to the labor force – dipped to 10.7% from 11.1%.

The rate of job growth seen in March still pushes a full recovery well into the future. Even if the US continues to add 916,000 jobs every month, it would take until January 2022 to lift employment back to levels seen before the pandemic.

“Today’s report confirms that labor market conditions are rapidly heating up but reaching broad-based and inclusive full employment will be a multi-year process,” Lydia Boussour, lead US economist at Oxford Economics, said in a note.

The White House is already teeing up its next booster for US job growth. President Joe Biden revealed a $2.3 trillion spending plan on Wednesday. The so-called American Jobs Plan includes funds for restoring roads and bridges, building affordable housing, and installing a nationwide broadband network, among other projects. The proposal should create millions of union jobs over the next eight years, according to the president.

“Now it’s time to rebuild,” Biden said during his announcement, adding: “Wall Street didn’t build this country. You, the great middle class, built this country, and unions built the middle class.”

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The blowout March jobs report was powered by new employment in restaurants, schools, and construction

Restaurant coronavirus orange county
People dine at Alessa while pedestrians walk along the Promenade on Forest Ave, a pedestrian-only experience featuring shopping and restaurants, in Laguna Beach Tuesday, March 30, 2021.

  • Sectors with the strongest job gains in March signal reopening will fuel a swift economic rebound.
  • Leisure and hospitality businesses counted for one-third of last month’s gain of 916,000 payrolls.
  • Hiring in the government and construction sectors improved significantly from the prior month.
  • See more stories on Insider’s business page.

The sectors that added the most jobs in March hint at just how much the economic reopening might revitalize the US labor market.

Businesses added 916,000 nonfarm payrolls last month, according to Bureau of Labor Statistics data published Friday morning. The reading handily beat the median estimate of 660,000 payroll additions from economists surveyed by Bloomberg, and signaled that partial reopening, improved vaccination, and new stimulus fueled a strong uptick in hiring.

Job additions were also more evenly spread in March than in the month prior. While February saw leisure and hospitality businesses drive nearly all of the month’s gains, the sector counted for roughly one-third of the March upswing.

Public-sector hiring served as the second-largest source of job additions with 136,000 new jobs, suggesting state and local governments aren’t facing the same stagnant recoveries they endured after the financial crisis.

Job growth in the construction sector also rebounded after harsh winter storms led payrolls to shrink in February.

The utilities industry saw the smallest gain, while information businesses shed 2,000 payrolls through the month.

Here are the sectors that added the most jobs in March.

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March began the economic reopening, but its jobs report will hint at how fast things are getting back to normal

Orange County coronavirus
The Promenade in Laguna Beach on Tuesday.

  • The March payrolls report will preview just how fast the US labor market might recover.
  • Data on Friday will likely show strong gains because of stimulus, vaccinations, and reopening.
  • Economists see the report kicking off a period of growth averaging 1 million payrolls a month.
  • See more stories on Insider’s business page.

After months of either meager gains or unexpected losses, March is poised to be a turning point for the US labor market’s recovery.

The Bureau of Labor Statistics will publish its nonfarm payrolls report for March on Friday at 8:30 a.m. ET, providing the most detailed look at how hiring fared throughout last month. The backdrop is promising. March had warmer weather, and a faster rate of vaccinations led some states to partially reopen for the first time since the winter’s dire surge in cases. Coronavirus case counts started to swing higher at the end of the month but largely stayed at lower levels.

Democrats’ $1.9 trillion stimulus plan was also approved early last month and unleashed a wave of consumer demand and aid for small businesses. Sentiment gauges surged to one-year highs, and Americans strapped in for a return to pre-pandemic norms.

Consensus estimates suggest March had the strongest payroll gains in six months. Economists surveyed by Bloomberg said they expected nonfarm payrolls to climb by 660,000, which would be nearly double the 379,000 gain seen in February. The unemployment rate is forecast to dip to 6% from 6.2%.

Some on Wall Street are even more optimistic. March’s release should kick off a “series of extremely strong jobs reports” with payroll additions averaging 950,000 a month through the second quarter, Bank of America economists led by Michelle Meyer said in a note. Unemployment will likely sink to 4.7% by the summer and sink another 0.2 percentage points by the end of 2021, they said.

“It’s hard to keep up with this economy,” the team added. “We think consumer spending is about to take off given the one-two punch of stimulus and reopening.”

UBS holds a similarly encouraging outlook. Economists led by Seth Carpenter see the sharp acceleration in economic activity driving just as strong a jump in hiring. Payroll growth is forecast to average 1 million throughout the second and third quarters as the economy reopens. With roughly 10 million jobs still lost to the pandemic, such a growth rate would recover more than half the country’s missing payrolls.

The bank also said it expected the unemployment rate to decline to 3.6% by the end of 2023, with the drop slowed by a swiftly rising rate of labor-force participation.

Data previewing the headline report showed job growth breaking out of its middling trend. The US private sector added 517,000 jobs in March, according to ADP’s monthly employment report. Though the reading landed just below the median estimate of 550,000, the increase was the largest seen since September and marked a third straight gain.

Separately, weekly jobless claims trended lower through the month, albeit at a sluggish pace. Claims rose to 719,000 last week, according to Labor Department data published Thursday. While that was an increase from the prior week’s total, claims still dropped 3.5% month over month. And the previous week’s reading was revised to 658,000 from 678,000, marking the lowest reading since the pandemic first slammed the labor market.

The Friday report will also highlight whether the recovery is evening out or if a K-shaped trend is growing worse. Unemployment rates for minorities continued to lag those for white Americans in February, and the bulk of early hires were for high-income workers. Preservation of the trend in March’s data could signal that those hit hardest by the pandemic will be some of the last to recover.

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The February jobs report shows Americans are eager for a full reopening

NYC coronavirus tables restaurant
Empty tables stand at a restaurant in Manhattan on March 1, 2021.

  • The February jobs report exceeded expectations and hints at how reopening can accelerate job growth.
  • The bulk of the job gains came from industries hit the hardest by the pandemic.
  • Stronger hiring is coming, it’s just a matter of “how long it takes to get there,” BlackRock said.
  • Visit the Business section of Insider for more stories.

The February jobs report shows the labor market in reopening rehearsal. 

The US added 379,000 nonfarm payrolls last month, handily exceeding the median economist estimate of 200,000 additions. The unemployment rate fell to 6.2% from 6.3%, labor force participation held steady, and the number of Americans citing COVID-19 for not seeking employment fell by 500,000.

The drivers behind the gains are also encouraging.

While the drop in unemployment seen in January was largely tied to more Americans dropping out of the labor force, last month’s dip was tied to increased hiring across a broad set of sectors. The payroll increase would’ve “easily” topped 500,000 had adverse weather not contributed to construction jobs falling by 61,000, Morgan Stanley economists led by Robert Rosener said.

For all intents and purposes, the report came in more positive than expected. Investors overwhelmingly thought so, too. Treasurys declined sharply as traders bet on a faster-than-expected economic rebound, bringing the 10-year yield to its highest level since February 2020. The Dow Jones industrial average and S&P 500 gained, led by cyclical and value stocks.

Fanning February’s flames

A deeper dive into the data shows a recovery that’s found its footing. The leisure and hospitality industries – among those hit hardest by the pandemic and resulting restrictions – counted for 355,000 of the month’s payroll additions. Temporary job losses declined, suggesting businesses were able to reopen and rehire workers as COVID-19 case counts fell nationwide. 

The overall gains are a “surprise” and can be boiled down to reopening “arriving earlier than expected,” Brian Coulton, chief economist at Fitch, said.

Warming weather, continued vaccination, and even lower daily case counts stand to supercharge job gains into the summer. Plenty on Wall Street agree. The data “suggest that the labor market recovery is accelerating in earnest,” Bank of America economists Joseph Song and Michelle Meyer said Friday.

Michael Feroli, chief US economist at JPMorgan, said investors can expect “even better numbers” as reopening provides an “incredibly powerful tailwind.”

“There is no ambiguity regarding where employment is headed, in our view, but just how long it takes to get there,” Rick Rieder, chief investment officer of global fixed income at BlackRock, said.

Not so fast

Still, the battle is far from won. A handful of datapoints signal the climb to maximum employment will be much steeper than the 6.2% U-3 rate implies. 

Ahead of the February report’s release, Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen repeatedly said the “real” unemployment rate was closer to 10%. The unofficial estimate included Americans misclassified as being employed and those who dropped out of the labor force since the pandemic began.

That “real” rate improved to 9.1% through February, according to Insider analysis. While this is down significantly from the year-ago peak of nearly 24%, the pace of decline slowed significantly through the winter.

The U-6 unemployment rate – which tracks people marginally attached to the workforce and Americans employed part-time for economic reasons – showed no improvement at all and held at 11.1% last month.

These gloomier datapoints practically guarantee Powell will keep ultra-easy monetary conditions in place for the foreseeable future. The Fed chief cautioned on Thursday that it “will take some time” to achieve the central bank’s goal of maximum employment. The healthy decline in baseline unemployment is cause for some optimism, but a broad set of criteria need to be met to ensure the recovery is robust, he added.

“We want to see wages moving up. We’d want to see that the gains in employment are broad-based and that different demographic groups were experiencing it,” Powell said. “We have a high standard for identifying what maximum employment is.”

The still-elevated unemployment rate has also been cited by Democrats as a sign additional stimulus is still warranted. Senate Democrats kickstarted a lengthy amendment process on Friday with aims to pass a $1.9 trillion relief package over the weekend. The deal includes $1,400 direct payments, a $400 supplement to federal unemployment benefits, and funding for state and local governments.

While Republicans have argued the bill is a case of overspending, Democrats have pointed to lasting labor-market pain as justification for the hefty price tag. The bulk of February’s payroll gains can be traced to business reopenings, but an additional stimulus package could boost demand and drive new demand for workers.

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US economy adds 379,000 payrolls in February, smashing forecasts as virus cases tumble

Fishing store
  • The US added 379,000 jobs in February, beating the consensus estimate of 200,000 additions.
  • The reading marked a second straight month of labor-market expansion and an increase from January.
  • The unemployment rate dropped to 6.2% from 6.3%, putting it lower than forecasts.
  • Visit the Business section of Insider for more stories.

The US labor-market recovery accelerated in February as daily COVID-19 cases swiftly declined and the pace of vaccinations improved.

Businesses added 379,000 payrolls last month, the Bureau of Labor Statistics announced Friday. Economists surveyed by Bloomberg expected a gain of 200,000 payrolls.

The increase follows a revised 166,000-payroll jump in January. The labor market has now grown for two straight months after contracting in December as virus cases surged.

The US unemployment rate fell to 6.2% from 6.3%, according to the government report. Economists expected the rate to stay steady at 6.3%. The U-6 unemployment rate – which includes workers marginally attached to the labor force and those employed part-time for economic reasons – remained at 11.1%.

The labor-force participation was also unchanged at 61.4%. A falling participation rate can drag the benchmark U-3 unemployment rate lower, but such declines signal deep scarring in the labor market.

The bigger picture

Jobless-claims data and private-payrolls reports offer some detail as to how the labor market fared through February, but the BLS release paints the clearest picture yet as to how the coronavirus pandemic has affected workers and the unemployed.

Roughly 13.3 million Americans cited the pandemic as the main reason their employer stopped operations. That’s down from 14.8 million people in January.

The number of people saying COVID-19 was the primary reason they didn’t seek employment dropped to 4.2 million from 4.7 million.

About 22.7% of Americans said they telecommuted because of the health crisis. That compares with 23.2% in January.

Roughly 2.2 million Americans said their job loss was temporary, down from 2.7 million the month prior. The number of temporary layoffs peaked at 18 million in April, and while the sum has declined significantly, it still sits well above levels seen before the pandemic.

Filling the hole

The Friday reading affirms that while the economy is far from fully recovered, the pace of improvement is picking up, most likely tied to the steady decline in daily new COVID-19 cases. The US reported 54,349 new cases on the last day of February, down from the January peak of 295,121 cases. Hospitalizations and daily virus deaths have similarly tumbled from their early-2021 highs, according to The COVID Tracking Project.

All the while, the country has ramped up the distribution and administration of coronavirus vaccines. The US has administered more than 82.6 million doses, according to Bloomberg data. The average daily pace of vaccinations climbed above 2 million on Wednesday and has held the level. At the current rate, inoculating three-quarters of the US population would take roughly six months, but the Biden administration has a rosier outlook.

The president on Tuesday announced the US would have enough vaccine doses for every adult by the end of May. While distributing the shots will most likely last beyond May, the new timeline marks a two-month improvement to the administration’s previous forecast.

Still, other data tracking the labor market points to a sluggish rebound. Initial jobless claims totaled 745,000 last week, according to Labor Department data published Thursday. That was below the median economist estimate of 750,000 claims but a slight increase from the previous week’s revised sum of 736,000. Weekly claims counts have hovered in the same territory since the fall as lingering economic restrictions hinder stronger job growth.

Continuing claims, which track Americans receiving unemployment benefits, fell to 4.3 million for the week that ended February 20. The reading landed in line with economist projections.

Other corners of the economy are faring much better amid the warmer weather and falling case counts. Retail sales grew 5.3% in January, trouncing the 1% growth estimate from surveyed economists. The strong increase suggests the stimulus passed at the end of 2020 efficiently lifted consumer spending in a matter of weeks.

All signs point to another fiscal boost being approved over the next few days. Senate Democrats voted to advance their $1.9 trillion stimulus plan on Thursday, kicking off a period of debate before a final floor vote. President Joe Biden has said he wants to sign the bill before expanded unemployment benefits lapse March 14. The new package includes $1,400 direct payments, a $400 supplement to federal unemployment insurance, and aid for state and local governments.

The bill isn’t yet a done deal. Sen. Ron Johnson of Wisconsin forced a reading of the entire 628-page bill on Thursday, as Republicans seek to at least drag out its passage into law. Not a single Republican senator voted to advance the bill Thursday.

A process known as “vote-a-rama” will start after the 20 hours of debate and give Republicans the chance to further impede a final vote by introducing potentially hundreds of amendments to the bill.

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