And despite months of record jobs growth last summer, and with the pace of improvement picking up again this spring, the nation is still far from healed.
The pandemic has distorted a previously strong labor market, leaving predominantly lower income workers, women, Hispanic and Black workers unemployed.
Now the vaccine rollout, warmer weather and the reopening of the economy are bearing fruit, helping the jobs recovery to strengthen. Economists polled by Refinitiv on average predict 978,000 jobs were added in April, up from the 916,000 positions added in March. But many of those forecasts far exceed the average: Jefferies (JEF) is predicting 2.1 million jobs added, and Goldman Sachs (GS) forecasts 1.3 million, according to Refinitiv.
Still, America is down millions of jobs — more than 7 million should the consensus forecast hold — compared to February last year, before the pandemic hit. Economists are confident that many of these lost positions will come back over the course of the year.
On Wednesday, the ADP Employment Report, which measures private payrolls, said 742,000 jobs were added in April, mostly in the services sector, particularly in leisure and hospitality. The report, which is not correlated with the government’s tally, has undershot the official numbers in recent months.
Meanwhile, weekly claims for unemployment benefits fell to 498,000 last week, the Labor Department reported Thursday. That marked the first time during the pandemic that weekly claims fell below 500,000. Although jobless claims remain more than double their level from before the pandemic, last week counted more than 40,000 fewer claims than economists had expected.
“The pick-up in employment growth isn’t as strong as we had been expecting, especially given the recent boost to demand from the fiscal stimulus, and could be a sign that the increasingly widespread reports of labor shortages are starting to constrain hiring,” said Andrew Hunter, senior US economist at Capital Economics.
Indeed, there are some industries in which businesses are hard pressed to find workers. Factories and manufacturers continue to have trouble finding specialized and even entry-level workers. Industry executives say many potential employees worry those jobs aren’t sustainable because they could be sent overseas or replaced by automation.
This worker shortage could put pressure on wages to rise, which could be reflected in the April jobs report, economists said.
How the Fed could react
The Federal Reserve is also watching the labor market improvements closely. After all, achieving “maximum employment” is one of the two mandates for the central bank.
The other is to keep inflation steady. But the reopening of the economy, as well as higher raw material and energy costs are pushing prices higher. The Fed has said repeatedly it is too early to talk about raising its ultra-low interest rates or tapering its monthly, multi-billion dollar asset purchases.
But the confluence of economic data is setting the stage for a potential policy change later this year: The price index tracking personal consumption expenditures, which is considered the Fed’s preferred measure of inflation, stood at 2.3% for the year ended in March. Paired with strong job gains, this could make the central bank change its tune.
The Fed is targeting inflation at around 2% but has said it is looking for a moderately higher rate over the medium term.
The central bank could signal an impending change at its June meeting, “with a formal tapering announcement at the September or November [Fed] meetings,” said Veronica Clark, an economist at Citi, in a recent note. This would be in line with the agency’s promise to alert the public well in advance of changing its policy.
On Tuesday, Treasury Secretary and former Fed Chair Janet Yellen said interest rates may have to rise to prevent the economy from overheating, which led stocks to tumble. Yellen walked back her remarks later in the day, saying the Fed is independent in its decision-making and that she wasn’t making a prediction or recommendation.