MainStreet Macro: A jobs recovery like no other

Last week was a big one for labor market data.  On Wednesday, the ADPRI National Employment Report showed that the economy added 330,000 jobs in July, a marked slowdown from the 728,000-job pace we saw in the second quarter.   

On Friday, the Bureau of Labor Statistics released a blockbuster report showing that private payrolls had grown by 703,000 in July. Including the government, the economy added a total of 943,000 jobs.   

Though the monthly ADP and government numbers have often disagreed dramatically, year-to-date they sing the same tune. So far in 2021, ADP has reported about 3.4 million new jobs; the Bureau of Labor Statistics roughly 3.7 million.   

Dive deeper, and the numbers show that while the labor market continues to make progress, its journey to a full recovery over the last year and a half has been unique, unprecedented, downright unusual — pick your adjective.  

Here are three reasons why this is a jobs recovery like no other.  

1.  Pacing 

The job market’s monthly swings have been head-spinning since the pandemic began.  In the first two months of widespread business closures last year, the U.S. lost more than 20 million jobs, effectively erasing 10 years of employment gains.  

In the following two months, with COVID-19 in full swing, hiring peaked, with summer 2020 delivering more than 7.5 million new hires.  

Since then, we’ve seen more strong job gains and disappointing losses. COVID-19’s ebb and flow of outbreaks remain a key driver of monthly gyrations in employment.  

In some sense, the recovery has been speedy, with the unemployment rate falling from 14% to 8% in a few short months. To put that number in perspective, it took almost three years for unemployment to fall to less than 8% during the last recession.  

But with new concerns about rising infections tied to the Delta variant, Main Street might continue to be buffeted by hiring swings, even as the recovery continues to move forward. 

2. Bottlenecks 

Ramping up headcount has been challenging for employers of all sizes this summer.  While the number of job openings — currently at more than 9 million — is at a record high, roughly 6.5 million people remain out of work.  

At the same time, the number of people employed or looking for work trails pre-pandemic levels. Labor force participation is down 1.6 percentage points from when the pandemic began.  

One bottleneck to hiring is the timing mismatch. Many companies are eager to hire, but many workers are holding back, motivated by generous unemployment benefits, lingering pandemic concerns, and limited caregiving options.   

These bottlenecks will fade over time, but they continue to delay a fuller recovery.  

3. Churn 

The number of people leaving their current jobs to look for new ones has exceeded pre-pandemic levels, when unemployment was at a 50-year low. (It’s still 10%, down from the 8-year high reached in 2012).  

ADPRI data shows that there are benefits to changing jobs now, with job-switchers seeing stronger wage growth, on average, than job-holders.  

For another group, working for a boss has lost its appeal. New business applications are up, suggesting that workers are more inclined to hang their own shingle than return to traditional employment.    

There’s also been a pick-up in early retirees. An estimated 1.5 million additional people retired during the pandemic than would have otherwise, according to the Dallas Federal Reserve. 

These new entrepreneurs and retirees, combined with the departure of women from the labor market, are partly to blame for this summer’s recovery stopping short of last summer’s.  

We’ll have to see whether these groups return before we know how fast and complete the recovery will be.  

My Take 

Large employment swings occur for two primary reasons. Cyclical change is when employment rises and falls with economic growth.  Structural change occurs when long-term shifts in the economy force the job market to adapt to technological progress, demographic shifts, globalization, automation and upheavals in consumer preferences and attitudes.  

In our current recovery, the cyclical and the structural are colliding. The pandemic has altered the economy in ways that are both temporary and enduring.  

The rise of e-commerce has accelerated job losses tied to brick-and-mortar retail and increased demand for warehouse and delivery workers.  

An aging population and a potentially growing crop of early retirees mean that the workforce could become younger and smaller.  

Virtual work has shifted worker preferences and employer demands in terms of location.  

Through all this, the economy continues to experience a meteoritic recovery. I think we’ve set the stage for increased hiring momentum despite changes to the labor market’s structure. Right now, we have a cyclical and structural recovery on steroids. 

After a year of change, the jobs recovery is likely to march on, but to a different drumbeat.