It’s Time To Revisit Job Growth Expectations
More than two years after the severe job losses that occurred at the onset of the pandemic, the labor market continues its recovery with the number of jobs growing at a healthy and steady pace.
Firms added 428,000 positions in April, according to the Bureau of Labor Statistics, marking an annual gain of 6.6 million jobs. The unemployment rate remained 3.6% for the second consecutive month, just a tick higher than its pre-pandemic rate.
April’s jobs report resembled the previous month in terms of scale, but the streak of upward monthly revisions made to earlier reports has finally ended. March figures were trimmed by 3,000 positions and February figures were revised lower by 36,000 positions.
Both revisions are minor in scale but represent a turning point from the string of positive revisions made for 12 consecutive months, many of which were very large. In the most extreme case, December 2021 payrolls were revised higher from an additional 199,000 jobs to a jump of 588,000 jobs.
Many of these revisions sprung from survey difficulties, as well as pandemic-related forces such as the rush of new business formations when laid-off workers shifted to self-employment. While future revisions could go in any direction, these trends are easing now and there is a lower probability that biases such as these will generate upside revisions.
Moreover, headwinds are starting to emerge that could see firms actually scaling back hiring. As widespread inflation erodes disposable incomes, firms across industries are weighing if consumers will tolerate the higher prices they are facing. The Federal Reserve has become less accommodative and borrowing rates are rising, which will work to cool household demand and lead to a slowdown in the labor market.
For now, though, April’s relatively strong jobs report showed an economy reopening as concerns over the pandemic ease. About a quarter of the overall net job change came from the accommodation and food services sector, which added 66,100 positions, retail trade at 29,200 positions, and arts, entertainment and recreation at 11,300 positions. While pent-up demand could drive outsize demand from these sectors through the summer, job growth is likely to return to its long-term fundamentals thereafter.
Similarly, education and health care services added 59,000 positions over the month. Many medical providers have reopened for elective procedures that were much more difficult to schedule earlier in the pandemic.
Promising news comes from hiring in sectors that tend to offer above-average wages and long-lasting career paths. These include manufacturing (55,000 positions), transportation and warehousing (52,000 positions), professional and technical services (35,800 positions), and financial activities (35,000 positions).
Despite increased hiring, the competition for workers is moving wages higher, although wage gains are now slowing. Average hourly wages grew by 0.3% during the month of April and have grown by just 0.9% over the previous three months — the latter representing the slowest rate of growth in average hourly wages since April 2021.
In a separate report , the Commerce Department reported 11.5 million job openings on the last business day of March, up from 11.3 million the previous month and marking a record high. There are now about 5.5 million more vacancies than there are unemployed workers, or, stated differently, about 1.9 openings for each person looking for a job. Prior to the pandemic, vacant positions numbered about 7 million.
Job Openings Don’t Add Up
The relationship between payrolls and job openings is nuanced. Occupations with higher turnover can see multiple job openings within a year, whereas others are available less frequently. Listing a job opening on a firm’s website costs virtually nothing, which means that these can remain open even as the company is reducing its workforce. On the flip side, a single job opening can lead to the hiring of multiple candidates.
Hence, while there is reason to believe that the labor market is still in a state of labor shortages, the shortfall is unlikely to be of 11.5 million workers as the number of job openings might suggest. From February 2020 to April 2020, as COVID shuttered businesses and nonfarm payrolls tumbled by 21.9 million, job openings fell by only 2.3 million to 4.7 million. Thereafter, from April 2020 through April 2021, job openings grew by 4.6 million while nonfarm payrolls grew by 14.2 million positions.
Signs that the economy is at a turning point are emerging, as suggested by the shift from upward to downward revisions in the jobs report. Inflation may be peaking, depending on the indicator one follows, and the housing market appears to be cooling as mortgage rates and sky-high prices cause some potential homebuyers to put purchases on hold. The next few months will likely determine whether the Fed is able to engineer the needed slowdown without harming the economy.
What We’re Watching …
CoStar Economy is produced weekly by Christine Cooper, managing director and chief U.S. economist, and Rafael De Anda, associate director of CoStar Market Analytics in Los Angeles.