Unemployment II The Summer of Love and Job Creation

May 12, 2021

The Bureau of Labor Statistics announced 916 thousand jobs in March, confirming a bullish economic recovery. But this recovery has been uneven across sectors. Workers in construction, leisure and hospitality have been deeply affected by Covid-19, especially if compared to white collar professionals (who can easily work online). This coming summer is promising to reduce this gap. Market forecasts vary in degrees of bullishness: Focus Economics expects a 5.9% unemployment rate by the end of 2021, while Goldman Sachs projects it to be 4.1% due to a stronger economic recovery.

We expect it to be around 5%, with 3 million less jobs than before Covid-19, as excessive unemployment benefits and covid lurking around the US reduces eagerness to join the workforce. In addition, foreign economies’ sluggishness impacts US travel, leisure and the retail job market.

Summer of Love & Jobs – It is May. Spring is in the air, and CNBC economist Austan Goolsbee1 forecasts a summer of job creation, especially for labor-intensive industries such as travel, leisure and construction. As Covid-19 rates go down and the economy reopens, working class employment is in bloom this spring.

This change is reflected in the 0.1% decline in hourly pay month-to-month, while increasing 4% year-over-year. These m-o-m and y-o-y variation show that less blue-collar workers have jobs now than 1 year ago (pre-Covid-19), but more than a month ago (thus depressing average pay in the former, whilst increasing the latter).

Source: Bureau of Labor Statistics, Current Population Survey

This was in April – In terms of official data, the Bureau of Labor Statistics released the Employment Situation Summary on April 2nd.2 This latest report confirmed the fast-paced US economic recovery. The newest Household Survey data indicates 6% unemployment rate as of March 2021, the lowest level since the beginning of the Covid-19 pandemic in April 2020. 916 thousand jobs were created last month, way above the 675 thousand expected.3

These numbers helped sharpen the slope of most unemployment forecasts, while confirming our previous forecasts from our unemployment note published two months ago, on March 17th. Back then, unemployment rates were at a crossroad and the government was still debating whether to re-open the economy. Now, the Wall Street Journal is wondering whether there will be enough workers to fulfill demand.4

And this was in May – Wall Street Journal5 debates the merits of unemployment benefits for those who left the job market – As of May, it appears that 520 thousand mothers and 170 thousand fathers6 have left the job market. Republicans blame excessive unemployment benefits, and we partially agree. But we see that as the Covid-19 epidemic retreats in most of the country and unemployment benefits fade away, the number of people applying for jobs will grow, and unemployment rates will verge towards the 5% expected by the end of the year.

The US economy engine roars – As the opening paragraph and the chart above shows, most industries driving this growth are job mills. Leisure and hospitality accounted for 381 thousand new jobs as of March, or 41.6% of all jobs created that month. In February, that proportion was even higher, as 82% of all jobs created, 384 thousand out of a 468-thousand total were in these sectors.

The White House celebrates – The surprisingly good job market news was well received by the White House but warranted some caution as well. Biden said: “Our economy created 900 thousand jobs in March. (…) The first two months of our administration have seen more new jobs created than the first two months in any administration in history (…) but we still have a long way to go to get our economy back on track.”7 The cautious statement is justified as the economy is still distant from the 3.5% pre-pandemic unemployment rate as one can see on the chart below:

Source: Bureau of Labor Statistics, Current Population Survey

The labor force’s sharp, but gradual recovery – Although the US economy seems to be getting back on track, there is still a long road ahead. Another good indicator to measure this job market is adult participation in the workforce. As one can see on the chart above, as the labor force shows decisive growth, there are still 3.9 million Americans outside of the job market since February 2020. As explained in the previous article, some of those outside of the workforce may never come back.

Others might end up retiring or giving up work altogether. Finally, there is the controversy presented in the Wall Street Journal article about excess unemployment benefits in a time when Covid-19 is still present.

A handy help from the government – As the US Labor Market is still far from ideal, the government is trying to pass a stimulus bill to ease the situation for the unemployed. After the approval of the US$ 1.9 trillion economic stimulus, President Biden is looking forward to passing the infrastructure investment US$2 trillion plan,8 which should help blue collar jobs.

Mike Fratantoni, chief economist for the Mortgage Bankers Association,9 shared his thoughts on the importance of the topic: “Although the job market is certainly recovering quickly, the stimulus payments and renter and homeowner relief that were part of the American Rescue Plan will provide support for struggling individuals who are unemployed or underemployed, including the 2.5 million homeowners currently in forbearance plans.” Finally, the government will provide US$ 10.5 thousand in tax rebates for unemployment income earned last year, furthering strengthening working families’ recovery.10 But the debate on the excessiveness of that help continues to lurk around the Capitol.

Forecast – The Focus Economics11 unemployment forecast points to a 5.9% average rate for the end of 2021 and estimates a 4.8% rate in 2022. Goldman Sachs has a much more optimistic view and believes this rate could fall to 4.1% by the end of 2021. We are more bullish than Focus Economics and more bearish than Goldman Sachs. We believe that uneven global Covid-19 recovery will impact the US economy, especially the job market’s heavy job-generating industries such as leisure, hospitality and retail, historically lagging sectors.

Hence, we forecast that unemployment rates should be around 5% by the end of 2021, and adult participation should remain at 162 million workers, still 3 million below pre-Covid-19 height, as less people will come back to the workforce for a myriad of factors, including excessive unemployment benefits.

Bernardo Weaver is a senior finance consultant at the World Bank Group in Washington DC and a finance professor to top investment banks and Hedge Funds in Wall Street. Mr. Weaver also teaches M&A as an adjunct professor at Georgetown McDonough School of Business and at Pepperdine University Graziadio School of Business. Mr. Weaver is a Wharton MBA grad, and holds an LLM from UConn Law, and a law degree from P.U.C.- Rio, in Brazil.


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1 https://www.cnbc.com/

2 Employment situation summary. (2021, April 02). Retrieved April 05, 2021, from https://www.bls.gov/news.release/empsit.nr0.htm

Scotsman guide Media. (n.d.). Retrieved April 13, 2021, from https://www.scotsmanguide.com/browse/content/labor-market-takes-big-step-forward-in-march

Cambon, Sarah Chaney. “Economic Growth Is Set to Surge. Hiring Might Not Keep Up.” The Wall Street Journal. Dow Jones & Company, April 18, 2021. https://www.wsj.com/articles/economic-growth-is-set-to-surge-hiring-might-not-keep-up-11618738202

5 https://www.wsj.com/articles/millions-are-unemployed-why-cant-companies-find-workers-11620302440

6 https://www.ny1.com/nyc/all-boroughs/news/2021/05/10/biden-unemployment-covid-

7 ABC news. (n.d.). Retrieved April 06, 2021, from https://abcnews.go.com/Business/unemployment-rate-falls-march-employers-add-916000-jobs/story?id=76788420

8 FACT sheet: The American jobs plan. (2021, April 08). Retrieved May 04, 2021, from https://www.whitehouse.gov/briefing-room/statements-releases/2021/03/31/fact-sheet-the-american-jobs-plan/

9 Scotsman guide Media. (n.d.). Retrieved April 13, 2021, from https://www.scotsmanguide.com/browse/content/labor-market-takes-big-step-forward-in-march

10 https://www.cnbc.com/2021/05/03/tax-refunds-on-10200-of-unemployment-benefits-start-in-may-irs.html

11 FocusEconomics. (n.d.). United States unemployment rate – US economy Forecast & Outlook. Retrieved April 23, 2021, from https://www.focus-economics.com/country-indicator/united-states/unemployment

12 Goldman Sachs forecasts a jobs BOOM, Says unemployment rate could fall to 4.1% by the end of 2021. Retrieved April 23, 2021, from https://www.cnbc.com/


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