The reopening of the economy and revival in demand have been met with some frictions in the labor market, but many of the prevailing challenges should even out over the ensuing months.
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As we head into the first week of June, investors await the May employment report to signal progress on the labor market recovery. A disappointing April report suggested a combination of higher federal unemployment benefits, lingering COVID concerns, and remote schooling constrained job growth, but as many of these factors ease in the coming months, job growth should increase.
After 266,000 jobs were added in April, a fraction of the one million jobs forecasters expected, the Chamber of Commerce called for an end to enhanced federal unemployment benefits, claiming one in four recipients gets paid more in unemployment than they would earn, discouraging work and causing labor shortages. Indeed, job openings reached a record 8.1 million in March, and 44% of small businesses surveyed by the NFIB had job openings they could not fill, a record high.
However, there were other factors at play as well. Data for the April report was collected the same week that vaccination rates peaked in the U.S. Workers may have only just received a vaccine, and wanted to wait until fully vaccinated to return to work. Additionally, labor force growth in April was entirely attributed to men, while women dropped out of the labor force, mostly aged 25-54, suggesting that remote schooling continues to be a headwind for labor force participation.
Some of this reluctance has been met with companies raising wages or governments offering return to work bonuses, like in Arizona, New Hampshire, Montana, and Oklahoma. Yet, the need for some of these measures may abate. Progress has already been made in the last few weeks, with initial claims falling to 406,000 (a pandemic low), continued claims for regular benefits and pandemic programs declining, and vaccines widely available. The enhanced federal unemployment supplement will be discontinued in at least 24 states starting June 12 with the final state withdrawing by July 10, which should be reflected in the July jobs report. Many states have also reinstated the requirement that one must have actively searched for work or could not turn down a job to receive benefits, a stipulation waived during the pandemic. The enhanced supplement ends September 6, coinciding with likely a full return to in-person school, which should increase the participation of working families.
The reopening of the economy and revival in demand have been met with some frictions in the labor market, but many of the prevailing challenges should even out over the ensuing months. These challenges have been a headwind to job growth but may push up wages in the short run. However, job growth should improve and wage pressures could moderate in time, putting less upward pressure on inflation.
Continued claims for unemployment insurance
2-week rolling average
Source: Department of Labor, J.P. Morgan Asset Management. PEUC = Pandemic Emergency Unemployment Compensation; PUA = Pandemic Unemployment Assistance. Data are as of May 27, 2021.