The labor market is headed to the moon.
Hiring in the US is entering a period of significant upward momentum as COVID-19 cases decline, vaccinations are administered, and service industries reopen in earnest. Employment numbers in the next few monthly jobs report — the latest which is set to be released Friday — are about to enter meme-stock territory. To borrow from Barstool Sports founder Dave Portnoy, for payrolls, we are about to scream “seven-figure months only!”
The data are quite compelling that the labor market is picking up steam and the surge could produce charts that match the recent upswings in Reddit-fueled stocks like GameStop. Here are a few indicators that have caught my attention.
- The Census Bureau’s Small Business Pulse Survey: The percent of firms reporting an increase in paid employment rose to 7.4% for the week ending March 20. The percent of firms reporting an increase in hours worked climbed to 8.4%. I haven’t seen numbers like this since last summer. Recall that average jobs growth in the third quarter of 2020 was 1.174 million per month.
- The American Staffing Association’s Staffing Index: Over the last year, the staffing index has climbed 11.2% through the week ending March 13. This index has long been used as a proxy for temporary help employment. Taking the index at face value implies that temp-help employment has reversed all of its pandemic related job losses.
- The Dallas Fed’s Real Time Population Survey: The employment rate for working-age adults (18–64) in the RPS was 70.9% for the week of March 14 to 20, up sharply from the estimate of 68.6%for the week of Feb. 7 to 13. The unemployment rate in the RPS was 9.4%for March 14 to 20, a substantial decrease relative to the estimate of 11.5%for Feb. 7 to 13.
- Google Mobility: According to data from Google, mobility is clearly on the rise at transit stations, retail & recreation (restaurants, cafes, shopping centers, movie theaters, theme parks), and workplaces. People are on the move — it strains credulity to think that employment is not also.
Next, I suspect the industry composition of job loss will lend itself to a stronger employment recovery. The job losses were quite large relative to the drop in GDP last year. The nearby figure is straightforward, plotting the Q4/Q4 change in GDP versus change in private nonfarm payrolls, lagged one quarter. Compared to 2008, the job loss is roughly 2.5 times larger despite relative similar declines in GDP. The upshot is that gains in GDP can lead to outsize gains in employment because the employment shortfall is concentrated in industries that are mainly low-productivity services (leisure & hospitality).
In short, the US labor markets are speeding up and we are likely to see numbers on a scale we have not seen since the initial reopening of the economy late last spring into the early summer.
A couple of things are happening.
- First, the decline in COVID-19 cases is breathing life into high-touch service industries. Those businesses that require close physical proximity to end consumers are the ones most hurt by COVID spread. When COVID recedes, the opposite tends to be true. People are getting more comfortable doing things with other people.
- Second, while the concern for permanent business closures has been widespread, it is probably less appreciated how quickly some businesses can restart. According to the Census, likely employer business formations have rebounded. Data from Yelp show that in the last three months of 2020, the platform added more than 18,000 new food businesses, on par with the previous year.
Right now, there does not appear to be a constraint on jobs growth because too few businesses are open or because existing establishments have hit a wall.
This does that mean that the outlook is without risks. I see two potential issues facing the jobs market.
First, will the generous enhanced unemployment insurance program keep some from attaching to jobs? After all, average weekly earnings in leisure & hospitality are around $440. Thus, the $300 plus up on UI amounts to greater than 1 for 1 income replacement and could keep prospective workers from filling job vacancies. One recent study found that while job applications declined following the recent UI plus up, there was no impact on employment, though this was in the middle of the pandemic.
Second, the Biden administration is planning a massive infrastructure plan at a time when the US residential housing market is significantly undersupplied. Will this keep construction workers from working in residential? Presumably, it depends on how quickly the money goes out the door.
Nonetheless, the evidence for these risks is largely anecdotal and not in the macro data. The bigger story in the jobs market for the next few months will be a straightforward one: To the moon.