Three points about Friday’s disappointing US Employment Situation report, with only 266,000 jobs added versus expectations for 1 million:
#1: It did almost nothing to close the gap of 8 million fewer US workers now versus February 2020, and that’s part of a trend – not a one-time occurrence. The chart below shows that peak (152.5 million workers) and how little progress the American labor market has made since November 2020 (that small hump you see about 3/4s of the way across the chart). Over the last 5 months total employment is only up by 1.5 million workers, or an average of 300,000 workers/month. April’s 266,000 actually fits neatly into that pattern.
Takeaway: Chair Powell mentioned the 8 million worker shortfall at least 5 times in his last press conference, so it’s clearly his favored heuristic for assessing the state of the US labor market and by that measure the Fed is justified in keeping policy very accommodative.
#2: Our explanation for Friday’s lackluster report is that the US labor market is white hot in some areas and still pretty ice cold in others. We have been highlighting state and city level unemployment for months now, but even we were pretty surprised to see just how much disparate labor markets could bubble up to a lousy aggregate April Jobs Report.
As a reminder of the March state-level data, here are unemployment rates for the 5 largest US states by population and the 1-2 largest cities in each:
- New York: 8.5 percent
- New York City: 11.2 percent
- California: 8.3 percent
- Los Angeles: 10.9 percent
- San Diego: 6.9 percent
- Texas: 6.9 percent
- Houston: 8.0 percent
- San Antonio: 6.5 percent
- Pennsylvania: 7.3 percent
- Philadelphia: 10.6 percent
- Pittsburgh: 7.5 percent
- Florida: 4.5 percent
- Jacksonville: 4.4 percent
- Miami: 8.2 percent
- Tampa: 4.7 percent
Takeaway (1): 4 of the 5 largest US states had noticeably higher unemployment rates in March than the national level, and in every single case it was major urban areas pushing joblessness higher. Florida is the only exception at the state level, but Miami’s March unemployment was still quite high.
This tells us that there’s a large chunk of US unemployment that is semi-structural and April’s Jobs Report confirms the idea that cities reopen in order for the American labor force to see its next leg of job growth. Put another way, April’s lousy report is not a macroeconomic datapoint. It is much more a measure of 1) how slowly major urban centers are removing pandemic-related restrictions and 2) how slowly life is returning to “normal” in these areas.
Takeaway (2): almost half the country is actually seeing a labor shortage, at least in some occupational areas. Back in March there were 21 states with an unemployment rate below 5 percent. Some are large (Ohio, Florida, Minnesota, Indiana, Georgia), and some have smaller populations (the Dakotas, Montana, Alabama, Maine, Idaho, for example). We assume the April numbers will show even less joblessness in these states once the data comes out.
#3: There’s been some concern that larger-than-usual unemployment insurance benefits are keeping workers out of the labor force, and while that’s certainly true in some cases, the data suggests it’s not a great explanation for what’s going on at a national level.
For some historical perspective, here is US labor force participation back to 2008. Note that from the highs at the start of 2008 (66.2 percent) it fell to 64.2 percent in January 2011. That was the period of extended unemployment benefits during/after the Great Recession.
There was a lot of chatter at the time (as there is now) about this 2-point LFP drop being caused by protracted unemployment benefits past the usual 26 weeks. Even after they expired, however, LFP continued to decline until September 2015 (62.4 percent). It took a hot economy at the end of the last cycle to start pulling LFP higher, and it was entirely female LFP at that.
Takeaway: labor force participation is a complicated economic driver, but it is most responsive to a fast-growing national economy. Last month did see an uptick, just visible on the far right of the graph, which makes us somewhat skeptical that enhanced UI is keeping millions of people out of the workforce. As with our prior point about regional variations, it is certainly true at a local level. Once large urban areas reopen more fully, we’ll have a clearer picture of where LFP really stands.