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Tuesday, July 6, 2021
Participation, wages, and the total labor gap
After a few lackluster months of hiring, the June jobs report came through.
On Friday, we learned nonfarm payrolls grew by 850,000 last month, with economists viewing the report as a signal that some of the hiring pressures we’ve documented within the labor market are starting to ease.
But underneath the headline data — which also showed a slight uptick in the unemployment rate as the number of people looking for work increased — we wanted to flag a few charts outlining some of the big trends set to drive the labor market in the months ahead.
The first comes to us via Nick Bunker, an economist at Indeed, who noted that while overall labor participation was flat at 61.6% in June, we saw a notable uptick in prime-age participation.
During the month, the labor force participation rate among adults 25-54 rose to 81.7%, the highest since the pandemic began and matching the level seen in January 2018. As you may recall, the economy during that year was deemed strong enough by the Fed to warrant four rate hikes.
After the financial crisis, the decline in participation among prime-age workers was a major sign that the economic recovery was underserving workers and growth at-large. The rise in this rate over the second half of the 2010s was one of the most encouraging economic trends underway — before COVID-19 disrupted the economy.
A continued rebound in participation among those enjoying the fastest career and earnings growth will be a key gauge of the health of the post-pandemic economic recovery.
Another key area economists have been watching is the battered leisure and hospitality space, which bore the brunt of layoffs and furloughs during the most acute phase of the crisis.
As the economy has rebounded, this sector has seen some of the stiffest hiring competition, and wage increases have followed as a result. In June, average hourly earnings for this sector hit a new high of $18.23, a new record for the series and a 7.1% increase over the same month last year.
We choose to highlight aggregate rather than the rate of change in wages, however, because while these increases are being watched in part for their inflationary impulses, the absolute level of wages that end up prevailing in the sector could reset how both employers and employees think about opportunities in the industry.
Higher overall wages for the sector can offer more stability for workers, less turnover for employees, and a broad reorientation of the opportunities available in this growing part of the economy.
And finally, each month it is worth highlighting what remains the most discouraging labor market chart for the pandemic economy. As of June, total employment in the U.S. remained 5.7 million below February 2020 levels.
Last week, we explored the role early retirements could be playing on overall employment. This dynamic would, all else equal, render the chart of total employment somewhat less relevant.
But the importance that policymakers see in this data will keep the gap between February 2020’s employment level, and any future month’s reading, near the top of conversations about the state of the labor market recovery. Or as Fed Chair Jay Powell said plainly in a press conference last month, “we’re very far from maximum employment.”
This chart is clear evidence of that statement.
What to watch today
9:45 a.m. ET: Markit U.S. Services PMI, June final (64.8 expected, 64.8 in May)
9:45 a.m. ET: Markit U.S. Composite PMI, June final (63.9 in prior print)
9:45 a.m. ET: ISM Services Index, June (63.6 expected, 64.0 in May)
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