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LIZ ANN SONDERS: Hi, everybody. Welcome to the May Market Snapshot. As regular viewers of these monthly videos know, sometimes I might dive specifically on the economy side of the equation, other times I’ll focus more on the stock market side of the equation, or even times where I blend the two. This is decidedly more on the economy, and very specifically a look at labor market conditions. And that is, I think, timely because of what was unfortunately a pretty weak jobs report that we got last Friday. The April jobs report was much weaker than expected. So I want to start by diving into that a little bit, and talk about the details and some of the reasons why there was such a miss relative to expectations.
So this is just a monthly bar chart that goes back to the beginning of 2020. And I didn’t really adjust the scales. What I did with that April of 2020 very, very negative bar is I only had the scale go to negative 5 million. I originally put this chart together and took it all the way to what was the case last April, which was a loss of almost 21 million jobs, but it skewed the scale of the charts, such that the recent gains all basically looked like a flat line, and I wanted to highlight the more recent gains. So that’s why you see that arrow denoting that that was just an epic month for job losses.
But fast forward to the recent period of time. We’ve been seeing a pickup in job growth. And in terms of the consensus, there was a report... the actual report was a gain of 266,000 jobs, which in a normal environment, that wouldn’t be a bad read. The problem was the consensus expectation was that a million jobs were going to be created. And then there were the more recent whisper numbers that were being bandied about, given some of the other labor market indicators, which I’ll talk about in a moment, suggesting that the number could actually be a lot higher than that. In fact, there was one research firm on Wall Street whose economist had a 2 million job estimate. Clearly, it was a significant miss relative to that.
But let’s take a longer term look at the level of jobs. And here’s something we’ve been pointing out. There’s been so much good economic news, and when expressed in year-over-year terms, percentage change terms, it makes it seem like pretty much everything is back to pre-pandemic levels. That is clearly not the case for jobs. Yes, we’ve seen a significant improvement off the low from April of last year, but we’re still more than 8 million jobs shy of getting back to pre-pandemic levels. And, certainly, if we had seen a number around a million last week for April, that would have made a big difference here, although, we still then would have been about 7 million jobs shy of where we were pre-pandemic. So we do have, still, a lot of work left to get back to those pre-pandemic levels.
We can also look at where the job gains or losses were concentrated in terms of industries or sectors as defined by the Labor Department. So you can see all the way they categorize various sub sectors of the economy. And maybe not surprising, given the fact that we’re getting close to most people being vaccinated, virus cases are going down, economic openings are happening more robustly around the country, and that is leading to a lot of job gains occurring in leisure and hospitality, where, of course, the weakness was most significant last spring because of the unique nature of COVID and the impact it had in areas like that.
Unfortunately, though, there was some red on the screen here, where we actually saw fairly large losses in professional and business services. And on the services side of the economy, given that’s where the pickup is likely to be most significant, that was a bit of a surprise. And then transportation and warehousing, which seems to be in stark contrast to what we know has been just an online shopping bonanza in the last year or so. I think what this indirectly reflects is also the explanation for maybe why the payroll gains were so weak last month. There were some exogenous factors, there were some seasonal calculation issues. But it’s also the case that based on analysis by everything from Wharton, to Tax Foundation, to a lot of other think tanks have looked into what percentage of people that are unemployed right now and receiving not just regular unemployment insurance, but the enhanced benefits that carry through to early September when they expire, anywhere from a quarter to a half of people receiving those benefits are actually taking in more money than if they either went back to their prior jobs or took a job that might be available now. So that is now being seen as one of the explanations, in that there is almost this fiscal disincentive to go back to work, given that people are bringing in more money.
And then you add to it, the fact that if you’re a parent and your kid is still, or your kids are still doing school at home and childcare issues, why not wait maybe until the beginning of September when they expire and then look for work again.
So there’s a lot of factors, but the hope of course is that that’s not the beginning of a new deteriorating trend and more of an aberration. And we can see some evidence of that, which I’ll get to in a moment.
But when we get that every fourth Friday jobs report, in addition to the initial headline being payrolls, how many jobs were gained or lost, the second headline that is reported is the unemployment rate. And in conjunction with an expected stronger payrolls in April, we had an expectation that the unemployment rate would tick down. Unfortunately, it ticked higher. So the blue line is just the standard what they call U3 measure of unemployment. And instead of dropping to about 5.8%, it actually ticked up to 6.1% from 6%. I’m going to get to actually a good news caveat as to why that happened.
But before I do that, I want to point out the yellow line here. When we go through a difficult recession and you see a significant rise in the unemployment rate and you start to go through the recovery process, a sub indicator to keep an eye on is something called long-term unemployment, and that’s shown in the yellow line here. That’s the number of people that are unemployed that have been so for 27 weeks or more, and you can see that is at about 40% of all those folks unemployed have been unemployed for more than 27 weeks. That is something in addition to the standard unemployment rate to keep an eye on. Obviously, we want to see that start to come down to get a sense that some of the scarring associated with this very difficult and unique crisis is starting to heal.
But here’s the mildly positive caveat and reason why the unemployment rate actually ticked up a little bit, and that’s because more people jumped back into the labor force. So that represents part of the calculation of the unemployment rate. And that is potentially a good sign that there’s a willingness to jump back into the pool of available labor and say, ‘I want to look for work, I want to try to find a job,’ and that ticked up, which is good news. It also explains why the unemployment rate ticked up. We want to continue to see this improve. If it does, it could mean a slower pace of improvement in the unemployment rate. But, again, it would be for the right reasons.
Another way we can look at unemployment is to separate between temporary layoffs, which really spiked… that’s the blue line… during the worst part of the COVID pandemic, where people were effectively just being temporarily laid off, or at least that was the hope at the time, or furloughed, different terminology is used, and that has since come down substantially. We still have more room to go to get back to pre-pandemic levels. In turn, though, what we were seeing is permanent job losses had been steadily rising until several months ago, during which time it started to improve and/or has been relatively flat. Unfortunately, with the April jobs report, both of these ticked higher, which is not what you want to see, very, very slightly, but just another set of indicators to add to your list of what to watch to get a sense of whether April’s jobs report was an aberration or a deteriorating signal about the overall economy. And these would be indicators that would pick that up to some degree.
Now, another metric that we get in conjunction with the monthly jobs report is around wage growth. And this may seem a bit odd… I’m going to show you this chart, I’m going to explain it, and then I’m going to tell you why you may want to not put this on your list of indicators to look at. So this is, arguably, the most common way we measure wage growth, but in a unique environment like the last year, I would also argue that is not the best metric to look at to get a true sense of whether we’re seeing wage growth. And the reason for that is this is an average. So it’s average hourly earnings, AHE, for short, and you can almost glean that something maybe is awry in this type of data, given what you see in the last year or so. Was it really the case that in April of last year, which is where that spike occurred, that wages were increasing by more than 8% a year, in April of last year when there were almost 21 million job losses? Of course not, but what was happening is that most of the job losses, especially in leisure and hospitality, were concentrated in the lower wage end of the spectrum. This is a simple average. What happens when you take a bunch of lower numbers out of an average? It raises the average. That’s what happened last April, and, essentially, the opposite is happening now. I showed you on that horizontal bar chart, huge gains in leisure and hospitality, that means lower numbers are being added back into this average wages and it’s bringing the wage down.
So don’t pay attention to this. There are other ways to measure wages. There’s a metric called Employment Cost Index. The Atlanta Fed has one called the Wage Tracker, which is, actually, a median level. So I wouldn’t solely, or maybe at all, rely on this to get a sense of wage data, which is why I think you’ll see pundits and economists focus a bit more on some of those other measures.
Now, one of the most leading of all labor market indicators is unemployment claims. Unlike the monthly jobs report, we get unemployment claims on a weekly basis, every Thursday 8:30 in the morning Eastern Time. And, again, there’s a headline number and then there are some sub headline numbers. The headline number is always how many people filed, initially, for unemployment insurance that prior week. There’s a lot of volatility on a week-to-week basis, which is why most economists, and in the case of this chart, that blue line is the four-week moving average. It just smooths things a little bit. And last week, we saw the single week claims number move down below 500,000 for the first time in the pandemic environment, down from a peak of almost 6,000 on a weekly basis. So that’s good news, although we, clearly, still have a ways to go, because if there’s still a half-a-million people filing for unemployment insurance, we have not healed the market.
Now, continuing claims represents those people who continue to stay on the unemployment insurance roll. What that, in turn, reflects is basically the net of hirings and firings. Unemployment claims is just about firing, but continuing claims takes into consideration that some people come off unemployment, get jobs again, and that’s what is picked up by continuing claims.
So we want to see continued improvement here on a weekly basis, because as a leading indicator, that will be suggestive that this April payroll fluke was just that, a fluke, and not a sign of a new deteriorating trend. Unfortunately, the opposite holds true, of course. If we see deterioration or an uptick in these, then it would be suggestive of maybe a deteriorating situation.
But I want to end on a more positive note. I don’t want to be a Debbie Downer here. The other two metrics to keep an eye on that have been telling a good leading story about the possibility that job growth picks up from here and that April might have been a fluke, one of them is job cut announcements. This is data put out by Challenger, Gray & Christmas. It’s a very widely watched and long history indicator. And you can see now that job cut announcements are at their lowest level since 2000. Obviously, job cuts come first. They lead the need for people to file for unemployment insurance, which, in turn, feeds into payrolls, the unemployment rate, etc. So as a leading-leading indicator in terms of labor market, this is great news, and we want to continue to see some improvement.
Another leading-leading indicator for things like unemployment claims, and, ultimately, payrolls are job openings. So this is data that comes from what’s called the JOLTS survey. And that acronym stands for the Job Openings and Labor Turnover Survey. And you can see that yellow line, that job openings have picked back up again, and actually are at pre-pandemic highs.
Now, we still have more unemployed people, that’s the blue line, than job openings, in contrast to pre-pandemic, where, as you can see, the yellow line was higher than the blue line, which meant we had more job openings than we had people. That was that era of the skills gap and the mismatch. There’s some of that creeping into the picture again. There is still a skills gap. And I think this will continue to narrow, but at least the good news is job openings are back to pre-pandemic levels.
So the leading indicator suggests we should see some improvement relative to that weak April jobs report, but at least I’ve now shared what particular metrics you would want to look at to get a sense of, indeed, whether that was a fluke or, let’s hope not, a deterioration in the trends.
So thanks as always for tuning in. Much appreciated.