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One Million Jobs in March

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Payroll employment is expected to rise by one million jobs in March, marking the strongest month since August 2020. Private sector payrolls are expected to rise by 850,000 while gains mostly at the state and local levels make up the remaining 150,000 of those increases. Reductions in initial unemployment claims, a slowdown in layoffs and a sharp jump in the share who say they are employed in the Household Pulse Survey by the Census Bureau point to robust employment gains for March.

Ramping up vaccinations, lifting restrictions on indoor venues and reopening schools for in-person learning combined with spring break are expected to have boosted employment during the month. Air travel hit the highest level in over a year, while reservations for seated dinners on Open Table picked up; the latter had remained well below the levels we saw in 2019.

Employment gains in restaurants, bars and accommodation are expected to account for more than half of overall job gains. Hiring in health care is also expected to post outsize gains. Dentists’ and physicians’ offices are open and trying to work through a backlog of patients who postponed routine appointments during the worst of the winter surge. A good portion of those over 65 is now fully vaccinated and willing to keep routine appointments. The only doctors I know who were unusually busy during the pandemic (other than those caring directly for the sickest COVID patients) were plastic surgeons. It turns out that well-to-do workers who suddenly saw themselves on screens all day decided that they wanted to make improvements on what they were seeing.

In fact, one of the ironies of the pandemic was the blow to health care employment. We were still down more than a half million jobs in the health care sector in February compared to the year prior. Cuts at the onset of the crisis were particularly large because smaller offices were forced to close for lockdowns almost entirely. Hospitals were forced to put more profitable elective surgeries on hold as people with non-COVID conditions shied away. A pickup in government aid should help make up some of those losses, but burnout is another hurdle; many of those who worked nonstop during the three surges are now exhausted, physically and emotionally.

Unusually harsh winter weather took a toll on construction in the Sunbelt. We are looking for some catch-up, especially in residential construction, in March. Workers in construction are scarce. A sharp drop in immigration, combined with the loss in apprenticeships and a surge in retirements in the wake of the housing bust, has depleted the ranks of skilled tradespeople.

Manufacturing is expected to post modest gains. Bottlenecks in the supply chain have idled much-needed production at some plants in the vehicle industry. Computer chips from Taiwan are scarce but critical to keeping factories humming. The Ever Given, the ship now blocking the Suez Canal, is adding insult to injury by further delaying critical components and goods from reaching U.S. ports.

Average hourly earnings are expected to flatline as low-wage workers dominate the surge in job gains in March. That will push down year-over-year gains in wages to 4.5%, the slowest pace in a year, from 5.3% in February. The precrisis peak in average hourly earnings on a year-over-year basis was 3.5% and dates back to July 2019. A shift in the composition of employment - a loss of low-wage jobs over the last year - has lifted year-over-year measures of wage growth. Brace for a further deceleration in the year-over-year print on wages as low-wage jobs come back and year-over-year comparisons become more difficult when we move into spring and summer.

Separately, the household survey is expected to show a drop in the unemployment rate to 5.7% from 6.2% in February. A rise in the ranks of those looking for jobs will mute the drop in unemployment. The shift is welcome news given the more than four million workers who gave up looking for work entirely over the last year.

We will be watching the ranks of the long-term unemployed, which have swelled to more than four million from a little more than one million before the pandemic. The data is worse when those who have dropped out of the workforce are included. Many of the long-term unemployed were among the last to enter the recovery of the 2010s and the first to be cut. Those workers tend to have a harder time finding employment and are most at risk from being displaced permanently by the shift to automation during the pandemic.

The Federal Reserve has flagged the prime-age (25-54 year-olds) employment-to-population ratio (EPOP) as a better measure of slack than the overall unemployment rate. It fell to 76.9% last month from 80.4% in February 2020. Wages did not accelerate for low-wage workers during the last expansion until the EPOP crossed 79% in 2018.

An increase of one million jobs would be an improvement but still leave us 8.5 million in the hole from the recession. At that pace, it would still take another eight and a half months to recoup what we lost to the recession, let alone what might have been. We had been generating more than two million jobs a year prior to the crisis. The key is not to lose momentum again. The good news is that the pace of vaccinations is rising. The bad news is that the pace of vaccinations alone is not yet enough to stem the rise in infections tied to fewer restrictions and new variants. We are in a race against the new variants, which are even more contagious in indoor venues than the original virus.

The loss of small businesses and a sharp rise in automation could slow the pace of job gains when we get past initial reopenings. The Federal Reserve has flagged the acceleration in automation as a concern and one of many reasons officials believe it will take longer to reach full employment than many on Wall Street expect.

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