August 03, 2021
(The monthly Employment Situation is scheduled for release by the Bureau of Labor Statistics on Friday, August 6 at 8:30 AM Eastern Time.)
Job growth averaged 567,000 over the last three months. That is probably a good best guess for the sort of job growth we can expect in July. We are still seeing businesses reopening and expanding with the ending of pandemic restrictions in hard hit sectors like restaurants, hotels, and live entertainment. There is still a long way to go to get back jobs lost during the downturn, so we should be seeing unusually rapid growth in these sectors for some months to come.
Lower Unemployment
We should also see a drop in the unemployment rate of 0.2 to 0.3 percentage points. The household survey is always erratic, but on average, it does track the establishment survey. Last month, the establishment survey showed the economy added 850,000 jobs, while the household survey showed a loss of 18,000 jobs and an increase in the unemployment rate to 5.9 percent. It will be very surprising if we don’t see a substantial drop in the unemployment rate in July.
It is worth noting that most of the upturn in COVID-19 cases, due to the spread of the Delta variant, came in the second half of the month, after the reference period. It is not clear how much this has slowed reopening in any case (the biggest rises have been in states where political leaders are not taking measures to contain the pandemic), but we are not likely to see much evidence of its impact in the July report.
More states had ended their $300 weekly supplements, as well as their special pandemic programs by July. While most research indicates this will not have much impact on employment, if these benefits actually were discouraging people from getting jobs, the effect will be less in July.
Wage Growth
We have continued to hear widespread reports of employers being unable to find workers. There are also anecdotal accounts of businesses raising pay and offering other incentives to attract workers. There had been clear evidence of an uptick in wage growth in the last three months that is consistent with the anecdotes, with the most rapid rates of wage increase in the lowest paying sectors, especially in hotels and restaurants.
The Employment Cost Index (ECI) for the second quarter, released last week, called into question this picture. The ECI rose just 0.7 percent in the quarter and is up just 2.9 percent over the last year. The difference can be explained in part because the ECI showed very weak growth in benefits. For the last three months, the ECI showed wages in the private sector increased by 1.0 percent, while benefits increased by just 0.3 percent.
The ECI does show the same sort of sharp pay growth in hotels and restaurants as the establishment survey. Over the last quarter, compensation in this sector rose 2.6 percent, while wages rose 2.9 percent. (This is a quarterly increase, not an annual rate.)
Anyhow, it will be important to see if we are still seeing rapid increases in hourly wage growth, especially in the lowest paying sectors. While this may be bad news for employers in these sectors, it is obviously very good news for the people who hold these jobs.
Weekly Hours
The other way that employers would be expected to respond to a labor shortage is by increasing hours for the workers they have on staff. The story here is not clear. The average workweek for all production and nonsupervisory workers is up by 0.5 hours from its 2019 average. But, this gain all occurred last year. Hours worked peak at 34.4 a week in January and have since edged back to 34.1.
There is perhaps a bit stronger story with leisure and hospitality, where the peak was in April, but it has since edged back by 0.2 hours to 25.1 hours per week, 0.4 more than the 2019 average.
Quit Rates
If workers feel confident about their labor market prospects, we should see a rising share of unemployment due to voluntary quits. The share of unemployment due to voluntary quits rose by 1.5 percentage points in June to 9.9 percent. This is still well below the 14.0-15.0 percent range we would expect in a strong labor market.
Black Teen Unemployment
Black teen unemployment has hit record lows the last two months, falling to 9.3 percent in June, a full 8.0 percentage points below the previous low. The data for Black teens is highly erratic, but the numbers for the last two months are so far below historic levels, it must mean a positive in their labor market prospects.
Long-Term Unemployed
The share of long-term unemployed (more than 26 weeks) has been extraordinarily high in the pandemic, reaching levels exceeded only in the worst months following the Great Recession. After falling somewhat from a peak in March, the share increased 1.2 percentage points to 42.1 percent in June. This matters not only because long-term unemployment is bad news for workers and their families; the long-term unemployed generally have a harder time getting reemployed, meaning the recovery will be slower.
Self-Employment
We have seen a large increase in the number of unincorporated self-employed in the pandemic. In June, the number fell by more than 100,000, but was still more than 300,000 above its 2019 average.
Jobs in Public Education
One big wild card is employment in state and local education. We are still down 582,000 jobs in this sector from the pre-pandemic level. Employment typically plummets in July because most schools are closed during the summer. With schools almost everywhere expecting to be resuming in-person instruction in the fall, most teachers will be getting back to work soon, but it is unclear whether they will be counted on the payroll in July. If we don’t see a big jump in education employment in July, it will mean the rise will be larger in August and September.
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