The economy is getting better, but the rest of 2021 will be far from normal

Job fair Florida
A man hands his resume to an employer at the 25th annual Central Florida Employment Council Job Fair at the Central Florida Fairgrounds.

  • The 2021 economy has been a wild ride with reopenings, people quitting jobs, and firms desperate to hire.
  • Economic data points to improvements in the second half of the year as wages rise and jobs increase.
  • But not for everyone. Unemployment for teenagers and Black and Hispanic workers is still high.
  • See more stories on Insider’s business page.

Halfway through 2021, the June jobs report signals a good step forward, but let’s not call this economy “normal” just yet. Things are still kinda weird.

The US added 850,000 jobs last month, beating estimates and showing a strong acceleration in the labor market’s recovery. It was the largest one-month jump since August and the sixth straight month of gains. After a bumpy six months for the labor market’s recovery, it’s starting to look like smoother sailing.

But it’s still choppy. While the sectors that transitioned to remote work have regained almost all lost jobs, those hit hardest remain far from healed. And while pandemic lockdowns have reversed, businesses will have to rehire in a wholly new environment.

The first strange signs for the economy came in April, when vaccinations were running ahead of schedule and reopening started in earnest. The jobs report that month was expected to show 1 million payrolls added, but it was a paltry quarter of that figure. Job openings sat at record highs, but factors ranging from virus fears to childcare costs kept workers on the sidelines. It was better than fears of a double-dip recession – when jobs unexpectedly dropped in December – but it was decidedly abnormal.

As the country reopens, the post-pandemic labor market is taking shape. It has little in common with the one left behind in early 2020.

An early look at the new job market

Working from home redefined employment, real estate, even culture in 2020. It’s shrinking back from its widespread adoption, but it may be here to stay. Despite many state and local governments reversing their strictest economic restrictions, roughly 14% of Americans still telecommuted in June.

The labor shortage remains an obstacle for businesses looking to hire, and it’s having an effect on workers’ pay. Average earnings climbed again in June. Pay grew the most in the leisure and hospitality sector, suggesting higher pay helped businesses hire more workers.

On the other end of the market, only 10% of job seekers are urgently looking for work, according to hiring giant Indeed. Most are taking a more leisurely approach, citing virus fears and financial cushions. June data reflects that relaxed pace; the number of people actively looking for a job was flat and the unemployment rate edged higher to 5.9%.

And while job growth broadly improved in June, the recovery is still leaving several groups behind. Despite a hiring bonanza for low-wage jobs, unemployment among teenagers rose to 9.9% from 9.6%. Unemployment among Latinos rose 0.1 point to 7.4%, while Black unemployment gained to 9.2% from 9.1%. That compares to the 5.2% unemployment rate seen among whites.

Relief programs for unemployment and student loans are about to end

There’s reason to believe Americans will take more jobs in the months ahead.

Several states are just starting to end the federal boost to unemployment insurance (UI) ahead of its September expiration. Twenty-six states in total – all but one are Republican-led – are set to end the benefit early in an effort to spur hiring. And jobless claims data suggests the effort is working. Filings for UI fell to a new pandemic-era low last week.

Other government relief programs, including the student-loan freeze, are also set to lapse in the fall. Economists refer to the deadline as a “fiscal cliff” and expect it to drive more Americans into the workforce.

Continued vaccinations, school reopenings, and reskilling should have a similar effect, Federal Reserve Chair Jerome Powell said in a June 16 press conference. Childcare costs and virus fears kept countless Americans at home, unable to find work. As those pressures diminish in the coming months, it’s likely worker supply will more closely match labor demand, Powell said.

“I think it’s clear, and I am confident, that we are on a path to a very strong labor market,” he added. “I would expect that we would see strong job creation building up over the summer and going into the fall.”

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June jobs report trounces expectations with 850,000 payroll gains as labor-market recovery picks up

Job interview california
Ray Liberge, 48, of Lawndale, talking to Jacky Estrada, the human-resources manager for the Zislis Group, after getting hired as a line cook at Rock’N Fish in Manhattan Beach, during a job fair at The Brews Hall in Torrance.

  • The US added 850,000 payrolls in June, beating the median estimate of a 720,000-payroll gain.
  • The unemployment rate rose to 5.9% from 5.8%. The median estimate was for a drop to 5.6%.
  • The payrolls increase is the largest since August and marks a sixth straight month of additions.
  • See more stories on Insider’s business page.

Hiring accelerated again in June as Americans returned to the workforce and reopening further juiced demand.

The US economy added 850,000 nonfarm payrolls last month, the Bureau of Labor Statistics announced Friday. The median estimate from economists surveyed by Bloomberg was for an increase of 720,000 jobs. The data suggests the labor shortage waned as businesses raised pay to attract workers.

The June print marks the strongest month of job growth since August and the sixth consecutive month of payroll additions. May payroll additions were revised to 583,000 from 559,000.

The unemployment rate rose to 5.9% from 5.8%. Economists expected the headline rate to hit 5.6%.

The labor-force participation rate was unchanged at 61.6%. The metric has become the go-to gauge for tracking the nationwide labor shortage. Hiring unexpectedly slowed through the spring as virus fears, childcare costs, and enhanced unemployment insurance kept Americans from seeking work. Firms have since raised wages to pull in job applications.

Average hourly earnings rose again, by 10 cents, to $30.40. The gain signals firms still lifted wages into the summer to speed up their hiring efforts.

“This pace of progress is solid and it looks like things can get even better,” Nick Bunker, an economic research director at the hiring website Indeed, said. “There’s still quite a bit of damage left to repair, but today’s report suggests that we may rebuild sooner rather than later.”

Snapshot of recovery

The monthly BLS report is among the most detailed snapshots of the labor market’s performance and gives new insights as to how the broader economy is recovering.

Even after the month’s stronger hiring, about 9.5 million Americans remain unemployed. Total payrolls are still about 6.8 million shy of their pre-pandemic peak.

The U-6 unemployment rate – which counts Americans working part time for economic reasons and those marginally attached to the workforce – rose to 10.1% on an unadjusted basis from 9.7%.

Gains were largest in the leisure-and-hospitality and accommodation sectors, where businesses added 343,000 and 75,000 payrolls, respectively. In leisure and hospitality, restaurants and bars counted for more than half of the gain.

The construction industry lost the most jobs, with a decline of 7,000 payrolls.

Roughly 6.2 million Americans named the pandemic as the primary reason their employer ended operations, down from 7.9 million. About 1.6 million cited the pandemic as the main reason they didn’t seek work, down from 2.5 million in May.

The share of Americans telecommuting fell to 14.4% through the month. That compares with the May share of 16.6%.

Experts see encouraging growth through the 2nd half

June stands to represent a turning point for the labor market’s recovery. The month saw the first few states end the federal boost to unemployment insurance ahead of its September expiration. Twenty-six states – all but one governed by Republicans – have announced plans to prematurely cancel the benefit, saying the move should encourage Americans to return to the workforce.

While the set of cancellations aren’t reflected in the June jobs report, jobless claims data out Thursday suggests the plan is working. Filings for unemployment benefits fell to 364,000 last week, beating economist estimates and marking a new pandemic-era low. Continuing claims still rose, suggesting Americans on unemployment insurance weren’t yet rushing to find jobs.

Survey data backs that up. Just 10% of surveyed job seekers urgently sought work in late May and early June, Indeed said. The most cited reasons for the slow return to work were virus fears, employed spouses, and financial cushions.

Those factors keeping Americans from taking jobs should fade as schools reopen and vaccination continues, Federal Reserve Chair Jerome Powell said. Americans can look forward to “strong job creation building up over the summer and going into the fall,” he told reporters during a June 16 press conference.

He added that while hiring stumbled in April, some of the slowdown was most likely caused by a skills mismatch between workers and open jobs. There “may be something of a speed limit” on the recovery as people look for work in new areas, Powell said.

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Restaurants and hotels continued their streak of adding the most jobs out of any industry in May

A waiter pours champagne for customers in New York City.
A waiter without a mask pours champagne for customers during the “Eggs and Leggs Drag Brunch” at Da Capo on the Upper West Side on May 22, 2021 in New York City.

  • The US added 559,000 jobs in May, a bounce back from the disappointing 278,000 added in April.
  • As in April, leisure and hospitality had the largest number of jobs added among industry sectors.
  • On the other end, construction employment dropped by 20,000.
  • See more stories on Insider’s business page.

More US jobs were added in May than in April, and most of the gains once again fell in the leisure and hospitality industry.

The US added 559,000 nonfarm payroll jobs in May, according to the latest jobs report from the Bureau of Labor Statistics, below economists’ median estimate of 674,000, per Insider’s Ben Winck.

Leisure and hospitality saw another strong month of job gains. The Bureau of Labor Statistics notes that most of these gains were from food services and drinking places. That includes places like restaurants and bars.

Most industries saw some increase in their employment over the month, but some industries saw larger gains than others. The following chart shows where the job gains, and losses, were from April 2021 to May 2021:

Employment in leisure and hospitality increased by 292,000 in May after increasing by 328,000 in April, totaling four consecutive months of six-figure job gains.

“The leisure and hospitality sector added another healthy amount of jobs, but it was roughly the same number as were added the month before,” Nick Bunker, economic research director at Indeed, wrote in a statement. “Any future pickup in job growth for the overall labor market is dependent on this industry seeing more of a bounceback.”

Elise Gould, senior economist at the Economic Policy Institute, wrote on Twitter that the industry is still below pre-pandemic employment by about 2.5 million. She added she’s “optimistic that we will continue to see solid growth in coming months as vaccine distribution continues and businesses find it safe to reopen.”

The second-largest gain was in the education and health services sector at 87,000, which was higher than the 25,000 job gains this industry had in April. Most of the government jobs added in May were from local and state education jobs. State government education added 50,000 jobs and local government education added 53,000 jobs.

“Growth in ambulatory health care services accounted for essentially all of the employment change in health care,” BLS wrote in an analysis.

Four sectors saw job losses in May, including retail trade which lost 5,800 jobs and construction which lost 20,000 jobs in a single month. At almost 15.2 million jobs, retail trade is still 2.6% below pre-pandemic employment, while at about 7.4 million jobs, construction is still 2.9% below February 2020 employment. Additionally, employment in mining and logging did not change from April.

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Why America’s economic recovery is stumbling as experts badly misjudge the labor market

Now Hiring sign
A customer walks by a now hiring sign at a BevMo store on April 02, 2021 in Larkspur, California.

  • April’s jobs report was a shocking miss, suggesting the hiring rebound many anticipated was an illusion.
  • Virus fears, childcare pressures, and unemployment benefits all likely drove the weak payrolls read.
  • Biden has proposed massive packages focused on jobs, but they likely face months of negotiation before passage.
  • See more stories on Insider’s business page.

Democratic political advisor James Carville became famous in the 1990s for his phrase “it’s the economy, stupid.”

After April’s shockingly disappointing jobs report, it looks more like “it’s not the economy, stupid, it’s the virus.”

March’s strong jobs data – along with widespread projections of a coming economic boom – had raised optimism among economists for a continued recovery in the labor force. It prompted Federal Reserve Chair Jerome Powell to deem March an “inflection point” for the reopening of the economy, and experts saw it kicking off a season of outsize payroll increases. But the drop in April makes clear the virus continues to bite.

Economists had expected payroll gains to reach 1 million, but the country added just 266,000 jobs last month. It was the smallest monthly increase since January and the biggest miss of payroll forecasts in more than two decades. The unemployment rate rose to 6.1%, female employment declined, and, although hard-hit sectors like leisure and hospitality saw healthy gains, most others posted either meager growth or shed jobs entirely.

The Bureau of Labor Statistics’ Friday release underscores just how much the labor market still has to recover, and that the climb won’t be as easy as most economists anticipated. Even if April stands out as a gloomy outlier, the average pace of payroll growth suggests it could take years to fully recoup the millions of jobs lost to the pandemic.

What went wrong?

The jobs report was such a shock that it’s hard to find a single explanation at first glance. It also highlights just how inadequate forecasting tools are for measuring this unique economic moment.

Economists typically use a combination of quantitative and qualitative data to estimate future growth. Indicators like weekly jobless claims and hours worked join anecdotal evidence and broad surveys to create forecasting models. Economists’ calculations, when tallied together and averaged, usually come close to guessing monthly payroll additions.

The April data serves as a wake-up call for the many forecasters who didn’t even come close to guessing correctly. Whether models overlooked details like COVID-19 fears or bullish biases tarnished forecasts, economists need to reconcile how they were so wrong.

The disappointment was likely fueled by several factors instead of one solvable hurdle. Despite President Joe Biden’s overdelivering on vaccinations, the country is far from placing the coronavirus pandemic behind it. Daily case counts still averaged about 50,000 at the end of last month, and highly contagious strains continue to spread across the US.

The coronavirus pandemic has also been notable for the “she-cession,” hurting female employment much more than men. The absence of affordable childcare and lack of in-person schooling around the country likely kept some Americans home instead of working, as born out by the April report, which showed women – who disproportionately take on childcare responsibilities – losing jobs through the month.

How big is the labor shortage?

Last month also saw several businesses across the manufacturing and service sectors reporting difficulties in finding workers. The jury is still out on how widespread worker shortages might be, as about 10 million Americans remain unemployed. On one hand, some economists suggest boosted unemployment benefits cut into the incentive to find work. Strong wage growth in the leisure and hospitality sector also signals businesses may need to lift compensation to attract workers.

“The benefits are due to expire in September but perhaps people think jobs will be just as easy to find then as they are now, so why take a job today?,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, said. “If people continue to resist taking the jobs on offer at the pay on offer, then wages will have to rise more quickly.”

The Chamber of Commerce called on lawmakers to withdraw the federal benefit to unemployment insurance following the April report. The supplement results in 25% of recipients earning more from unemployment benefits than by working, Neil Bradley, executive vice president and chief policy officer at the Chamber of Commerce, said in a statement.

“We need a comprehensive approach to dealing with our workforce issues and the very real threat unfilled positions pose to our economic recovery from the pandemic,” he added.

The April data does not quite agree with the chamber’s argument, showing labor demand overshadowing anecdotes of a supply shortage. April job gains were strongest in lower-wage industries and in sectors with in-person jobs. The composition of last month’s job additions “doesn’t scream supply constraints as the problem,” Nick Bunker, an economist at Indeed, wrote on Twitter.

Separately, the number of Americans temporarily laid off ticked slightly higher in April. That also signals labor demand wasn’t as robust as businesses’ anecdotes suggested.

Looking to other labor-market data, the steady decline in weekly jobless claims now looks much less encouraging for the recovery. The April uptick in unemployment comes as filings for unemployment benefits fell throughout the month to numerous pandemic-era lows. The drops initially seemed to signal that more Americans were returning to work, but BLS’ report suggests the downtrend has more to do with Americans dropping out of assistance programs than finding employment.

It could take months for the government to lend a hand

Much of the last few months’ promising job gains were linked to massive stimulus packages. The CARES Act helped a sharp hiring rebound after initial COVID-19 lockdowns in March 2020. And Biden’s $1.9 trillion plan in March 2021 spurred stronger economic activity last month.

The president has since rolled out two new spending proposals, the larger of which would spend $2.3 trillion on job creation. The American Jobs Plan would create millions of jobs by funding traditional infrastructure projects, clean energy initiatives, and nationwide broadband, Biden said in a Thursday speech. Biden’s administration has at other times cited a Moody’s Analytics projection of 2.7 million new jobs from the American Jobs Plan.

The smaller package, named the American Families Plan, could support hiring in its own right by overhauling the care economy, as it seeks to provide paid family and medical leave and childcare support.

Yet such support is likely months away. Republicans have balked at both plans, lambasting their hefty price tags and the tax hikes proposed to offset them. Democrats seem to face a challenge passing the package on a party-line vote via reconciliation, as some moderates in their party have yet to throw their full support behind the follow-up packages as they exist.

To be sure, the April report represents just one month of hiring. May numbers could show a healthy rebound and revive the positive trend. The economy is not even fully reopened from virus-safety considerations yet, so rebounds are likely.

But with additional fiscal support far on the horizon and economists highlighting a number of obstacles hindering job growth, the resurgent spring recovery for jobs that many economists were predicting is gone.

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The disappointing April jobs report showed gains were mainly in leisure and hospitality

A waiter in New York
  • The latest jobs report came in far below economists’ estimates.
  • But the hard-hit sector leisure and hospitality saw another month of strong gains.
  • Professional and business services saw the largest job decline between March and April.
  • See more stories on Insider’s business page.

The leisure and hospitality sector was the only major industry to see a six-digit job gain between March and April.

The US added just 266,000 nonfarm payroll jobs in April, according to the latest jobs report from the Bureau of Labor Statistics. This increase was far below the 1-million job gains economists expected to see. BLS wrote in the report that the leisure and hospitality sector saw 331,000 jobs added in April “as pandemic-related restrictions continued to ease in many parts of the country.”

Employment gains across sectors were not as spread out as they were in March. The following chart shows what sectors saw job gains and losses from March to April:

The biggest rebound in April was in leisure and hospitality; this was the third-consecutive month of job gains for this sector. Most of the jobs added in leisure and hospitality were from food services and drinking places. Food services and drinking places added 187,000 jobs last month, but the industry is still 13.5% below its pre-pandemic employment level from February 2020.

“At least job gains picked up in the leisure and hospitality sector, where job growth is desperately needed,” Nick Bunker, an economist at Indeed, said in a statement about the latest figures. “But the gains were not as fast as hoped for or, frankly, as needed. Employment in these industries is still almost 17% below pre-pandemic levels.”

The sector that saw the second-most gains was government. This sector’s employment rose by 48,000 last month. BLS noted that most of the gains in this sector were in local education, which added 31,000 jobs in April.

After adding jobs in March, employment in professional and business services dropped the most last month. This sector lost 79,000 jobs last month. BLS wrote in the jobs report that “employment in temporary help services declined by 111,000” in this sector.

Construction, however, did not see any employment change from March to April. The sector did add 97,000 jobs in March after a loss of 57,000 jobs in February.

“Shockingly in a period of quickly rising housing prices, construction industries added no new jobs in April,” Bunker said.

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‘What is everybody else not seeing?’ One top economist details why Friday’s jobs report will double the average forecast – and explains why she’s comfortable being an outlier

Now Hiring man with mask
A man wearing a mask walks past a “now hiring” sign on Melrose Avenue amid the coronavirus pandemic on April 22, 2021 in Los Angeles, California.

  • Jefferies’ estimate for April payroll growth is 2.1 million jobs, double the consensus forecast.
  • Economist Aneta Markowska cited time-sheet data, jobless claims, and surveys for her bullish forecast.
  • Reopening and stimulus will play a bigger role in the April report than in March, she added.
  • See more stories on Insider’s business page.

The Bureau of Labor Statistics’ upcoming jobs report is expected to show strong payroll growth through April as the US reopened. But where most economists see a moderate month-over-month improvement, Aneta Markowska of Jefferies stands out in her bullishness.

The median estimate from economists surveyed by Bloomberg for April payroll growth sits at 1 million payrolls. That would mark a pickup from the 916,000 jobs added in March and the strongest month of job growth since August.

Markowska, Jefferies’ chief economist, forecasts that the economy added 2.1 million jobs last month. Not only is that more than double the median forecast, but also 800,000 payrolls greater than the next highest projection from a top economist. The unemployment rate will fall to 5.2% from 6% and beat the forecast of 5.8%, according to the bank.

While Markowska’s estimates stand leagues away from the consensus, the chief economist told Insider she has a tougher time understanding the median forecast than supporting her own.

“To be honest, I’m sort of asking the same question in reverse. What is everybody else not seeing?” Markowska said. “I run a number of models and the lowest one gives me an estimate of 1.4 million.”

Looking to quantitative data, Markowska highlighted changes in jobless claims as supporting growth of more than 1 million payrolls. Kronos data tracking hours worked correlates well with nonfarm payrolls and signals an April gain of 1.6 million jobs, she added.

BLS’ survey timing also backs up Jefferies’ forecast. The March report had little to do with reopening, as the survey window closed on March 13, Markowska said. The April report, due for release Friday morning, should better capture how reopening and Democrats’ stimulus boosted job growth in the leisure, hospitality, and retail sectors, she added.

Still, the hard data only makes up part of Markowska’s projection. Reports like the Census Bureau’s Household Pulse Survey and The Conference Board’s own survey point to growth as high as 4 million payrolls, the economist said. Although survey responses are volatile and harder to tie to quantitative data, they support Markowska’s argument for a blowout month of job gains.

“Obviously [3 million] sounds excessive, and I wouldn’t rely on any of those individually. But they certainly give me more confidence that we could get something closer to 2 million,” she said.

Aneta Markowska
Jefferies Chief Economist Aneta Markowska.

Looking beyond April growth and into 2022

Robust hiring could last into the summer, and even though Markowska sees the pace tapering off later in the year, she still expects growth to trend above the pre-pandemic norm. Jefferies’ GDP forecast calls for a 7% expansion in 2021, slightly exceeding the Federal Reserve’s estimate for 6.5% growth. That rate implies average monthly payroll additions of about 500,000 payrolls in the final month of 2021, Markowska said.

The chief economist’s optimism isn’t relegated to 2021. Consensus forecasts see the rate of recovery dropping off in 2022 as stimulus expires and easy gains turn into more modest improvements. But where the Fed expects GDP growth to slow to 3.3% next year, Markowska cited a still-elevated savings rate and expectations for stronger production for her 5% growth forecast.

“There’s still a lot of upside for industrial production. I think, by the middle of the year, you’re going to be looking at capacity utilization rates that match the peaks from the last cycle, and they’re going to keep going,” she said.

“That’s where I really differ: the ability of this economy to sustain a lot of that momentum. Whereas a lot of people see a fiscal cliff happening next year, I think that’s more of a story for 2023.”

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American companies are struggling to hire workers, but BofA sees that fading by early 2022

kohls now hiring
  • Many US businesses are facing worker shortages as the economy starts to reopen.
  • The unusual dynamic will fade by early 2022 as the labor market rebounds, BofA economists said.
  • Expanded unemployment benefits and COVID-19 fears are likely keeping many from seeking work, they added.
  • See more stories on Insider’s business page.

A McDonald’s paying people to interview for jobs. Uber drivers holding off on rides in hopes of higher pay. Millions of payrolls possibly vanishing altogether.

The US economy is still down roughly 8.4 million jobs since the pandemic first fueled massive layoffs. That suggests hiring would quickly bounce back as the country reopens and Americans get back to spending as usual. But the opposite effect is taking place. Instead of an oversupply of workers meeting weaker demand, businesses looking to hire are coming up against a shortage of Americans seeking employment.

That shortfall is presenting an unusual and unexpected challenge to the broader recovery. Without a return to pre-pandemic employment, consumer spending will trend below its potential and leave less money flowing through the economy.

Bank of America economists aren’t particularly concerned. The shortage is likely driven by expanded unemployment benefits included in the latest stimulus package, concern around catching the coronavirus, and home-schooling demands for working couples, the team led by Michelle Meyer said in a Friday note. The bank expects that dynamic to fade by early 2022 as stimulus expires and more Americans are vaccinated.

“Therefore by early next year, COVID-related labor shortages will likely be replaced by ‘traditional’ shortages because of a hot labor market,” the economists added.

The team reiterated its expectation for the unemployment rate to fall to 4% by the end of 2021. The rate currently sits at 6%, but the government’s latest payrolls report suggests monthly job additions will average about 1 million in the near term.

Still, the “traditional” labor shortages expected to emerge next year will present new constraints, according to the bank. The red-hot labor market could “make it difficult” for ports to reach pre-pandemic employment levels even after the health crisis ends, the team said. Such setbacks could further increase factory backorders, which already swelled in recent months due to supply chain disruptions.

The amount of time Americans spend disengaged from the labor force could also slow the recovery. The post-pandemic economy won’t be the same as the one seen before the outbreak, and those changes will make the return to work difficult for millions of Americans, Federal Reserve Chair Jerome Powell said in March.

“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, adding the central bank needs to “keep supporting them” as the labor market creeps toward a full recovery.

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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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