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THREAD. Don't obsess about the shocking April jobs report. It just means that pandemic recovery has a long way to go. The labor market is weak, not tight. Expect millions of workers to come off the sidelines in the months ahead.
My column: https://www.bloomberg.com/opinion/articles/2021-05-07/april-jobs-report-is-a-big-disappointment-what-happened @bopinion
My column: https://www.bloomberg.com/opinion/articles/2021-05-07/april-jobs-report-is-a-big-disappointment-what-happened @bopinion
2/ Normally, a disappointing jobs report reflects a reluctance among employers to hire more workers. But the demand side of the labor market looks strong. The problem is more likely on the supply side; job opportunities are out there but workers aren’t flocking to them.
3/ The plural of anecdotes is not data, but all the noise employers are making about their struggle to fill jobs may have more signal than many economists thought.
4/ Assessing the tightness of the labor market is difficult enough in normal times. But the pandemic has scrambled economic concepts and measurement. From my perspective, though, the single most important fact about the labor market is that lots of workers are still available.
5/ In a tight labor market, this wouldn’t be the case.
6/ Let’s start with employers’ demand for workers. The rate of job openings is at a record high, suggesting that businesses want to hire. In addition, last month there were 1.3 unemployed workers for every job opening.
7/ For context, following the 2008 financial crisis, this measure peaked at 6.5 unemployed workers per vacancy, and in the slack labor market of that slow recovery it didn’t fall below two until 2014.
8/ The rate at which workers quit their jobs is now slightly higher than it was prior to the pandemic, as well, suggesting that workers have confidence that they can find a better opportunity in the job market than the one they have. https://twitter.com/MichaelRStrain/status/1390362913555329024
9/ The most convincing argument that the labor market is tight is that employers are feeling the need to raise wages to attract and retain workers.
10/ According to a measure of wage growth maintained by the Atlanta Fed, median annual wage growth for continuing workers was about the same in March 2021 (3.7%) as it was in February 2020 (3.9%), the month prior to the Covid-19 recession. https://twitter.com/MichaelRStrain/status/1390361839775670273
11/ Wages are growing across the economy more broadly, as well. Prior to the pandemic, average wages were growing at a 3% annual rate. Relative to March, they grew at a 8.7% annual rate in April.
12/ In normal times, these statistics would make a compelling case that the job market is hot. But the U.S. economy is not in normal times.
13/ Concepts like “tightness” make more sense when economic change is gradual. Today’s economy is experiencing rapid shifts that make it harder for the array of available data and statistics to tell a consistent story.
14/ Take that hopeful-looking rate at which workers are quitting their jobs. If some workers are quitting because their children are stuck in schools and day care centers that have yet to reopen, then the statistic isn’t telling the story it normally tells.
15/ The single most important statistic is something we can call the “pandemic jobs gap.” Factoring in the April data, my calculations suggest that the U.S. is currently 10.8 million jobs below its pre-pandemic trend. https://twitter.com/MichaelRStrain/status/1390406261976576004
16/ That suggests a job market with a long way to go to full health, and is a more persuasive statistic than the ones that point to a tight job market with employers scrambling to find available workers.
17/ Still, today's numbers add to the case that the demand side of the labor market is in much better shape than the supply side.
18/ The excessively generous unemployment benefits that are in place until September will keep workers on the sidelines, restricting employment gains and keeping wages artificially high.
19/ The longer schools and day-care centers are closed, the harder it will be for women with children to go back to work.
20/ Supply-chain issues are holding the job market back, as well. In April, the motor vehicles sector lost 27K jobs, perhaps due to shortages of computer chips needed to make cars. The transportation and warehousing sector lost 74,100 jobs, due in part to challenges w/ shipping.
21/ Over the next few months, expect more conflicting signals about the underlying health of the labor market. In fact, expect the degree of conflict to intensify.
22/ The mystery of the April data will be resolved with time and additional analysis, but the overall state of the labor market will remain hard to assess.
Fin/ The fundamentals of the labor market are weak. But the experience of employers, along with rising wages, will continue to lay a veneer of tightness atop a weak foundation until worker supply issues resolve. Until then, buckle up.
My column: https://www.bloomberg.com/opinion/articles/2021-05-07/april-jobs-report-is-a-big-disappointment-what-happened @bopinion
My column: https://www.bloomberg.com/opinion/articles/2021-05-07/april-jobs-report-is-a-big-disappointment-what-happened @bopinion
