Signs of Labor Market Recovery Slowly Emerge

Roy Maurer By Roy Maurer March 5, 2021
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U.S. hiring activity improved dramatically in February, as employers added 379,000 new jobs, mostly in leisure and hospitality, according to the latest employment report from the Bureau of Labor Statistics.

The private sector actually generated 465,000 new jobs in February, but losses in local and state government offset gains. The unemployment rate ticked down to 6.2 percent from 6.3 percent in January but will likely begin to fall more in the coming months as vaccinations increase, the weather improves and service-sector jobs return.

"With more than two times the number of jobs added in February than January, it's the first positive sign in 2021 that the employment situation is improving," said Kevin Harrington, CEO of job search site Joblist. "In particular, it's encouraging to see a high number of jobs added in hard-hit industries like food and beverage, where the pandemic has caused mass job loss. Although there is still a long way to go to reach pre-pandemic levels, this report suggests that the rate of recovery is finally starting to accelerate."

Nevertheless, given that the economy is still down over 9 million jobs from a year ago, the employment gains are fairly modest, said Julia Pollak, a labor economist at ZipRecruiter, an online employment marketplace in Santa Monica, Calif. "They do not yet signal a rapid rebound, but rather the slow reawakening of the labor market after the COVID-19 winter," she said.

"The economy would need to add almost 1 million jobs a month for the rest of 2021 to return to pre-crisis levels by the end of the year," said Daniel Zhao, Glassdoor senior economist. "That rate of recovery is a tall order at this point, though not completely out of the question once the economy can fully reopen safely," he said.

Nick Bunker, an economist at the Indeed Hiring Lab, said that it is still too early to get excited by the signs of recovery. "Expectations were quite low given the current state of the labor market," he said. "The labor market is still rebounding from the depths of last March and April, and there is still an enormous amount of damage to come back from. The prime-age employment-to-population ratio—the best way to see the damage—shows the share of the prime-age population with a job has fallen by 3.9 percentage points from a year ago. It will take years to get back to pre-pandemic levels on this front."

Rehiring at Bars, Restaurants Lead Gains

February's job growth was driven by large increases among leisure and hospitality employers, which added 355,000 jobs, as coronavirus-related restrictions eased over the course of the month in many places. About 80 percent of that increase was reported in bars and restaurants (+286,000 jobs), although employment in the sector is still down 3.5 million positions, or 20 percent, from where it was one year ago.

"Service-providing industries like leisure and hospitality, health care and social assistance (+45,600) and retail trade (+41,100) saw a strong rebound in February as the winter wave abated," Zhao said. "Goods-producing industries like manufacturing (+21,000 jobs) and construction (-61,000) performed surprisingly poorly in February despite strong demand for goods and housing."

Severe winter weather across much of the country was likely a factor in construction's first monthly decline since April 2020. Construction employment is 308,000 jobs below its level a year earlier.

The business and professional services sector added 63,000 jobs, mostly in temporary help services. "Temporary help employment was up by 53,000 in February following an increase of 96,000 jobs in January," said Richard Wahlquist, president and CEO of the American Staffing Association in Alexandria, Va.

"This is good news, because temporary employment is a leading employment indicator," he said. "In the early stages of economic recovery following a recessionary downturn, staffing provides businesses an important strategic workforce tool, allowing them to quickly ramp up operations to meet increases in client and consumer demand."

The jobs that were in high demand pre-pandemic are still very much in demand today and are still some of the hardest to fill, Wahlquist added, citing tech-related sectors such as web development and programming, cybersecurity and life sciences, and sectors related to COVID-19, including pharmaceuticals, biotech, e-commerce, transportation/logistics/distribution, e-learning, and workplace health and safety.

"Even though the gains were heavily concentrated in one sector, more industries across the economy contributed job gains than losses overall, which is an encouraging sign that a modest jobs recovery is resuming more broadly," Pollack said.

She added that government employment, including in education, was the weakest point of the report. "Even before the February report, employment in the education sector had tumbled, with year-over-year employment changes ranging from -25 percent in sports and recreation instruction to -6 percent in elementary and secondary schools. In addition to accelerating vaccination efforts, helping schools recover and reopen must now be the key priority to avoid long-term scarring in the labor market."

Temporary Layoffs Fall

Both the unemployment rate, at 6.2 percent, and the number of unemployed, at 10 million, are much lower than their April 2020 highs, but remain well above their pre-pandemic levels in February 2020.

Among the unemployed, the number of people on temporary layoff fell by 517,000 in February to 2.2 million. That's 1.5 million higher than the level a year earlier but is down considerably from the recent high of 18 million in April 2020.

"Permanent job losers were unchanged at 3.5 million, a concerning sign as the level of permanent layoffs has held above 3 million since August," Zhao said. "Post-pandemic, it remains to be seen how many furloughed workers will be recalled and how quickly permanently laid off workers will be pulled back into the labor force."

Andrew Challenger, senior vice president of global outplacement and business and executive coaching firm Challenger, Gray & Christmas, in Chicago, noted that over 4 million workers are classified as long-term unemployed, up 3 million from pre-pandemic levels.

"The best time to get back into the labor market is during a tight-labor market when employers are having trouble finding workers," he said. "This report is a hopeful sign that those who have been out of work for a while may be able to reenter this year."

Sidelined Workers

The labor force participation rate remained at 61.4 percent last month, down about 2 percent from February 2020, as few workers returned to the labor market.

The labor force expanded by only 50,000, still 4.2 million people less than a year earlier, Pollak said. "Many Americans clearly do not yet feel comfortable returning to work and many face barriers to doing so, like continued school closures and reduced public transportation."

Wahlquist said that there continue to be big headwinds that are keeping workers on the sidelines. "One of the most significant is virtual learning, which forces parents to stay at home to support and proctor their children's online school experience," he said. "This has disproportionately impacted women in the workplace. A second headwind are the businesses that have been shut down by COVID-19, displacing millions of former employees. The fear of contracting COVID-19 is also keeping millions of Americans from returning to work."

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