While Friday’s US Jobs Report got some pretty good press for its headline numbers, we saw it as overall neutral/disappointing. Given the pandemic shock last year, analyzing this data isn’t as straightforward as the typical cyclical recovery. Policymaker goals, and capital market expectations, to some degree, both revolve around getting the US labor market back to something like its status quo ante, and ASAP.
3 points here:
#1: Let’s start the teardown of this data with some basic math: how many jobs did the pandemic take offline and how many are back as of today? A simple chronology gives the answer:
- From February to April 2020 the number of American jobs fell by 22.4 million (22,362,000, to be precise)
- From April to November 2020, 12.7 million came back (12,648,000)
- That leaves 9.7 million jobs still missing as a result of the Pandemic Recession (9,714,000). Prior to last Friday’s February report, job growth had actually stalled entirely post-November 2020. Friday’s +379,000 print swung the post-November job creation back to positive, but just by 239,000.
Takeaway: just to get back to the number of jobs America had in February 2020 by the end of this year requires growth of 971,400 positions/month. And that doesn’t even account for population growth. February’s +379,000 is a step in the right direction, but far from the pace needed to get back to February 2020. The last time the US labor market saw even +500,000 jobs created was September 2020’s +716,000.
Yes, further hiring in the hardest hit sectors will help a lot once reopening finds a higher gear, and we’ll cover that shortly. But it’s important to remember that the February 2020 economy was a full-bore late cycle affair and employers now are focused on maximizing profitability to make up for a lot of lost time and cash flow. The two environments could not be more different.
#2: US Labor force participation rates are not recovering; in fact, they’re beginning to roll over. The chart below shows the last decade of participation rates (workers + unemployed divided by civilian population). We’ve noted January 2020’s rate of 63.4 percent because it was the last cycle’s high point back to 2013.
The shock of sudden unemployment in April 2020 clearly had an impact on how many Americans thought of their potential employment opportunities, because participation rates went from best-in-years to worst-since-the-1970s. They troughed at 60.2 percent, made a modest comeback to 61.7 percent (August), but have been declining since October’s 61.6 percent.
Takeaway: this is the chart that matters most to both now-Treasury Secretary Yellen and Fed Chair Powell, and it’s not reflecting anything close to a robust economic recovery. They both understand that unemployment rates only count those looking for work. Since February 2020 the number of Americans who consider themselves in the labor force has decreased by 4.2 million people. We think the image above, more than any other single factor, explains why the Biden administration and Democrats pushed for such a large stimulus package. You need to pour a lot of gasoline down the carb of the US economy to get it running anything close to the way it did a year ago.
#3: Two of the largest pieces of the 9.7 million missing jobs mentioned above belong to the Education/Health Services and Leisure & Hospitality sectors. The first is still 1.3 million positions shy of where it was a year ago. The second is 3.5 million short. In total, that’s a combined 50 percent of all American jobs yet to be recovered from the Pandemic Recession.
This chart shows the number of jobs in each category over the past 12 months (green/top line for Ed/Health, blue/bottom line for Leisure/Hospitality) with “peak jobs” noted in the February 2020 highlight box. As you can see, Ed/Health job growth stalled after October and Leisure/Hospitality is actually below November levels today.
Takeaway: these are the 2 sectors that will need to recover most fully and quickly if the US labor market is to truly spring back from the Pandemic Recession. Ed/Health should do so – the latest DC stimulus package has money for these segments. Leisure & Hospitality need a robust return to travel and drinking/dining out. We see that as likely for leisure travel this year, but WFH trends may limit business travel for at least a few years to come.
The bottom line to all this: it took 10 years for the US labor market to grow as strong as it was in February 2020, and even with trillions in fiscal stimulus/low interest rates it will not get back there in 2021. From a capital markets perspective, that’s not a big problem. Corporate profitability will be just fine. It is, however, important when considering if Congress/President Biden will need to pass another stimulus package this year. We always assume markets understand the Jobs Report in micro detail, and what we’ve shown you today does point to more stimulus to come. One more reason, in other words, to be positive on stocks even if there is likely some further turbulence ahead.