Goldman says the US unemployment rate could drop below 4% this year as stimulus and coronavirus vaccines fuel the recovery

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Goldman Sachs said the latest US unemployment figures were encouraging

  • Goldman Sachs economists said the unemployment rate could drop to well under 4% in 2021.
  • Their baseline prediction remains for a fall to 4.1% by the end of the year, from 6.2% in February.
  • Coronavirus vaccines and $1.9 trillion of stimulus are set to light a fire under the economy, analysts say.
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Goldman Sachs economists have said the US unemployment rate could drop sharply to below 4% this year if the $1.9 trillion stimulus package and coronavirus vaccines power an even stronger “hiring boom” than expected.

The economists, led by Joseph Briggs, said in a note on Monday their baseline forecast remained for unemployment to drop to 4.1% by the end of the year, from February’s level of 6.2%. That is one of the most optimistic forecasts on Wall Street.

Yet they said there is some possibility of a return to the pre-pandemic rate “in the mid-3s” this year.

“The main reason that we expect a hiring boom this year is that reopening, fiscal stimulus, and pent-up savings should fuel very strong demand growth,” the Goldman analysts wrote.

“We expect that the labor market recovery will accelerate this spring on the back of increasing vaccinations and easing of policy restrictions.”

The US unemployment rate shot up to 14.7% in April last year, as coronavirus hit the economy, a level not seen since the Great Depression.

But it has fallen relatively sharply as states have eased restrictions and the government and Federal Reserve have pumped trillions of dollars of support into the economy.

On Friday, data showed that nonfarm payrolls increased by 379,000 in February and the unemployment rate fell to 6.2% from 6.3% a month earlier.

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The Goldman economists said Friday’s data was encouraging, because it showed a sharp increase in the virus-depressed leisure and hospitality category, “hinting at further large gains to come.”

They added: “Two-thirds of remaining pandemic job losses are in highly virus-sensitive sectors, where employment should rebound as the economy fully reopens.”

The Goldman note comes after the US Senate approved President Joe Biden’s $1.9 trillion stimulus bill, having passed a $900 billion package in December.

Goldman said it expected unemployment to fall to 4.1% by the end of 2021, 3.7% by the end of 2022, 3.4% in 2023 and 3.2% in 2024.

A fall to 3.2% would be considerably below than the 50-year low of 3.5% seen before the coronavirus pandemic hit.

However, the note said there were risks to the forecast, including that the $300 a week unemployment benefit top-up “could discourage laid-off workers from returning to work”, although it said these effects would likely be small.

It also said that companies had turned to automation and labor-saving technology during the pandemic, suggesting that “not every pre-pandemic job will be filled again.”

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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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Dow rallies 308 points as traders digest blowout jobs report and rising yields

Trader
Traders work during the closing bell at the New York Stock Exchange (NYSE) on March 18, 2020 at Wall Street in New York City


US stocks rebounded after a sharp sell-off Thursday with the Dow gaining over 300 points following a blowout jobs report while yields rose.

Businesses added 379,000 payrolls in February, the Bureau of Labor Statistics announced Friday. Economists surveyed by Bloomberg expected a gain of 200,000 payrolls. The US unemployment rate fell to 6.2% from 6.3%, according to the government report. Economists expected the rate to drop to stay steady at 6.3%.

The 10-year Treasury yield extended its surge to top 1.61%. 

“The better-than-expected jobs report suggests a healthy economic rebound in progress and will likely add upward pressure on bond yields, as the bond market prices in a stronger economy, which may result in more consumer spending and eventually more inflation,” said James McDonald, Hercules Investments CEO and CIO.

“The biggest risk to the stock market is if the Federal Reserve loses control of bond yields, which have experienced a meteoric rise over the past month. Inflation will continue to exert upward pressure on yields going forward and into the summer months,” McDonald added.

On Thursday, Federal Reserve Chairman Jerome Powell gave little indication that the world’s most powerful central bank was willing to intervene in the recent government bond sell-off.

“I’d be concerned by disorderly conditions in markets, or by a persistent tightening in financial conditions,” he told the Wall Street Journal jobs summit. He said the Fed was keeping an eye on “a broad range of financial conditions,” not just one indicator. Investors took Powell’s words to mean that the Fed was fine with yields rising further. 

Here’s where US indexes stood after the 9:30 a.m. ET open on Friday:

Chamath Palihapitiya cashed out his entire stake in Virgin Galactic for $211 million. The billionaire still indirectly owns 15.8 million shares in Richard Branson’s startup.

Bitcoin is struggling to break past the $50,000 level and hovered below $48,000 Friday morning.

Oil prices rose sharply overnight after the OPEC group of oil producers and its allies unexpectedly agreed to continue limiting supply. West Texas Intermediate crude jumped as much as 2.9%, to $65.66 per barrel. Brent crude, oil’s international benchmark, rose by 3.04%, to $68.78 per barrel.

Gold jumped 0.16%, to $1,703.50 per ounce. 

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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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California, Hawaii, and Nevada saw the largest jumps in unemployment last year, government data shows

FILE PHOTO: An employee routinely sanitizes server trays at a reopened restaurant after restrictions to prevent the spread of the coronavirus disease (COVID-19) are eased in Bloomfield Hills, Michigan, U.S., June 8, 2020.  REUTERS/Emily Elconin/File Photo
Restaurants are reopening in Michigan.

  • Nevada, California, and Hawaii had the largest unemployment spikes in 2020, new BLS data shows.
  • Nebraska, Utah, and South Dakota saw their unemployment rates rise the least.
  • Employment-population ratios sank to all-time lows in 15 states including Illinois and Virginia.
  • Visit the Business section of Insider for more stories.

The coronavirus sparked the worst unemployment crisis in nearly a century, but the damage differs significantly state by state, according to new data from the Bureau of Labor Statistics.

The nationwide unemployment rate averaged 8.1% throughout 2020 as the pandemic fueled a massive leap in unemployment before giving way to a now-meandering recovery. Yet that overall figure fails to capture massive disparities at the state level.

For one, four states saw average annual unemployment rate above 10% last year. Nevada faced the bleakest downturn, with unemployment averaging 12.8% in 2020. Hawaii and California followed with averages of 11.6% and 10.1%, respectively.

New York – the epicenter of the nation’s first COVID-19 outbreak – saw unemployment average 10% in 2020, according to the Wednesday report.

Conversely, some states’ labor markets saw negligible upticks in unemployment. Nebraska fared the best, with its own rate of 4.2% nearly halving the nationwide figure. Close behind were South Dakota and Utah with average rates of 4.6% and 4.7%, respectively.

Gaps also emerged in states’ employment-population ratios. The metric is a popular alternative measure of unemployment since it counts Americans who dropped out of the labor force.

The ratios fell to record-lows in 15 states, supporting fears that the economic fallout is among the worst ever seen in the US. Nevada, Hawaii, and Rhode Island suffered the biggest declines of the group. The national ratio fell to 56.8% from 60.8% last year.

Mississippi and West Virginia posted the lowest ratios of 50.6% and 50.3%, respectively. To be sure, the readings weren’t the lowest in history for either state. Nebraska ended the year with the highest employment-population ratio of 66.7%.

Overall, 23 states boasted ratios higher than the national figure. Yet all 50 states and the District of Columbia saw their employment-population ratios decline from levels seen in 2019.

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