Elgin Area Chamber Of Commerce: Labor Market Picks Up Steam, Led By Restaurant Hiring

Press release from the Elgin Area Chamber of Commerce:

March 09, 2021

Jobs are back! With just under 400,000 hired in February, the past month was the best for the labor market since October. While this is clearly great news, we’re not quite ready to take a victory lap after our more optimistic column optimistic column First, let’s answer the standard question of how many jobs were added and across how many sectors. While the total hiring figure is indeed not bad (it would only take two years to recover all missing jobs at February’s pace, compared to five years at January’s pace), the diffusion index, or measure of how broad the gains were, is still weak and far below the breadth of gains last summer. Indeed, February’s strong hiring is almost entirely attributable to a single sector: restaurants. The 285,000 gain in restaurant employment was the most hiring for the sector since July. With coronavirus cases on the sharp decline through January and February, people felt more comfortable eating out, leading to the rehiring of workers. While that makes the February job gains less robust than we might like, it shows how quickly the hardest-hit sectors of the economy can rebound as we reopen. That’s a very good thing because, as the chart below shows, the sector still has a long way to go to recover all of the jobs lost in 2020. The accommodation and food services industry is still down over 2.5 million jobs from a year ago. The headline unemployment rate fell to 6.2% in February from 6.3% the month prior, but that understates the degree of accumulated turmoil under the surface. The problem, so to speak, is that hiring is still mostly coming from the temporarily unemployed. This is more like rehiring than new jobs. And while that’s important, long-term unemployment has remained unchanged at 6 million over the past four months. The chart below tracks those critically impacted workers who have been unemployed for half a year or more, as well as those who dropped out of the labor force but still want a job. Granted, we don’t generally see improvement in these categories until we are deeper into a recovery, so this is something of a lagging indicator. But these are the workers that the Federal Reserve is focused on getting back into the labor market. The labor force participation rate, the share of the population either working or looking for a job, was unchanged at 61.4% in February. This figure remains down from June 2020 levels, indicating that either workers aren’t yet confident enough in the recovery or possibly that households are still stuck taking care of children or the elderly instead of working. So many of the jobs lost and then gained in 2020 were temporary layoffs and furloughed workers, which isn’t typical during a recession. We usually see a sharp rise in permanent job loss as the economy contracts. We have been tracking those permanent job losses since the pandemic began and have noted that, while the big job gains in the back half of 2020 were driven by rehiring, permanent job loss was actually on the rise. Likewise, the share of permanently unemployed went up again in February. The level of permanent job loss has mostly flattened out, however, and has “caught down” to the pace of increase that we have typically seen during recessions in the post-war period. The rapidity of permanent job loss early in the pandemic was rare, which thankfully has slowed. But we can’t call 1.5% of the labor force being permanently out of work a “win," as it represents over 4 million workers and is still as high as we’ve ever seen one year into a recession. Our hope is that, as the virus gets under control, the rehiring of temporarily laid off workers will reduce permanent job loss figures and lead to a recovery of critically impacted workers. These are the kind of data points that should only durably improve with vaccinations, which, thankfully, have picked up quite a bit in recent weeks. But the February jobs report is a stark reminder that the recession was unusual on the way down, and will also be unusual on the way up. Here we echo the sentiment Federal Reserve Chairman Jerome Powell expressed in our quote at top: The breadth of employment outcomes is more important than the headlines. While the February jobs report was certainly good news, we’re still quite far away from "Mission Accomplished." The data deluge continues this week, most notably with the consumer price index measuring inflation for February to be released on Wednesday. Businesses have struggled a bit to meet rising demand in conjunction with difficult in-person working conditions, which is likely to result in some temporary goods price inflation to start the year. Elsewhere, we receive sentiment reports from the National Federation of Independent Businesses on Tuesday and the University of Michigan on Friday. These should showcase optimism levels for current and future economic conditions as seen by small businesses and households, respectively. Jobless claims reports will continue to be interesting to watch on a weekly basis, hopefully showing a more sustained drop as hiring conditions improve through the spring. There should be no comments from the Fed next week, as they prepare for their March 16-17 meeting, but we will be analyzing the evolving details and consequences of the latest congressional stimulus package.

This press release was produced by the Elgin Area Chamber of Commerce. The views expressed here are the author’s own.