An American economy on the cusp of a comprehensive reopening is set to generate another month of robust job gains that will border on the historic.
We expect the unemployment rate to fall to 5.7%.
With nearly 150 million Americans having received at least one dose of a COVID-19 vaccine, we expect a net increase in employment of roughly 1.4 million jobs in April, with risk of a much larger gain in private-sector employment. We expect the unemployment rate to fall to 5.7%.
Employment gains will be clustered around the leisure and hospitality sectors; goods-producing industries like mining and logging, construction and manufacturing; and professional business services.
In particular, watch for strong gains in food and beverage, retail and health care. Given that so many of those streaming back into the labor force will be in the service sector, the composition of employment gains will be skewed toward lower-paid workers.
Policy considerations
The major policy implications from the report will fall to the Federal Reserve. We think that the April employment gains and those that follow over the next few months will result in the Fed beginning to discuss the start of tapering operations – a reduction in the pace of its $120 billion in monthly asset purchases – early next year.
Once those operations begin, they will run for roughly one calendar year, we expect.
Given that the economy is still in recovery mode and remains 8.4 million jobs short of pre-pandemic levels, we do not see how even a robust month of job gains will be sufficient to change the policy calculus around the Biden administration’s American Jobs Plan or American Families Plan.
Wage considerations
For some time, we have made the case to ignore the increase in average hourly earnings because of the way the Bureau of Labor Statistics constructs the estimate. As workers return to the labor force, the asymmetries in average hourly earnings on a year-ago basis that have pushed it to 4% in March will start to trend lower in April and the ensuing months.
This is one of the interesting anomalies in the data caused by the pandemic. Anyone interested in the evolution of wages and salaries should focus on the quarterly employment cost index data, which indicates that labor costs of civilian workers are up 2.6%, and such costs for private industry workers are up 2.8%.
These figures present a better indication of the wage environment for the median worker than the 4.2% increase in the year-ago average hourly earnings.
Female labor participation rate
Women have borne the brunt of the job losses during the pandemic. The labor force participation rate of women in their prime working age, or those 25 to 54, dropped from 76.9% ahead of the pandemic to a low of 74.5% in November. In March, it stood at 75.2%.
The unemployment rate of women 20 and older was 3.1% in February 2020 and 5.7% in March this year. Of those women 20 and older, there were 72.1 million working in February 2020 compared with 68.5 million in March this year, a difference of 3.65 million.
Given the controversy around the $1.9 trillion American Rescue Plan and the incentive of workers to return to the labor force, we are closely monitoring the evolution of the labor force participation rate among women.
The idea that workers are not returning to the labor force because of generous unemployment insurance benefits is an interesting bumper sticker slogan that a few decades ago would have been a powerful argument against the expansion of unemployment compensation.
In today’s empirically driven worlds, such slogans don’t often survive first contact with the data or rigorous testing.
Instead, we think that the combination of lingering concerns about public health risks, the lack of child care options and schools that remain closed are the primary constraints to women ages 25 to 54 returning to the labor force. Once those schools reopen and child care becomes more available, those labor supply constraints will ease.
For more information on how the coronavirus pandemic is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.
