Wed. Oct 27th, 2021

We’ve all been looking forward to overcoming the pandemic, perhaps nothing more than the millions of American workers who lost their jobs when it arrived.

The initial progress in the wake of the pandemic was encouraging. More than half of the jobs initially lost returned between May and August 2020, meaning some 14 million jobs were recovered.1 But the pace has since picked up. it has shrunk even as economic activity has expanded, causing concerns about permanent healing in the labor market. it could keep unemployment high and dampen economic growth.

That’s a possibility, but it’s not Vanguard’s base scenario. We see a number of aligned forces that should drive a sharp rise in employment in the coming months and pave the way for a full recovery of the labor market by mid-2022.

The stage is set for stronger job gains

As long as the COVID-19 Delta variant does not require interventions that change the trajectory of the economic recovery, we expect new U.S. monthly jobs to reach an average of about 650,000 by the rest of 2021. Several factors contribute to our optimistic outlook, including the outlook for The American economy is reopening at full capacity. (We discuss our prospects in future research on reopening, inflation, and the Federal Reserve.) Vaccination rates before September should peak, which could convince some people they weren’t comfortable with face-to-face interactions. or that they were in the offices for them to return. to work. Schools are expected to reopen with face-to-face classes, which will allow more parents to stay home to take up jobs.

Then comes the expiration of increased unemployment benefits and CARES Act unemployment coverage for workers who are not traditionally covered by unemployment insurance. In total, this will cause nearly nine million unemployed workers to lose benefits by the end of September, which could lead to more people returning to the workforce.

An increase in workers will be good news for employers, as job offers reached a record high of 9.2 million in May 2021.1 An oversized part is found in the leisure and hospitality industry, which was hard hit by government restrictions driven by COVID and consumer reluctance. Demand for this sector may not return to pre-pandemic levels even after the full opening of the economy, but as the sector has struggled to find workers, employment continues to fall by 2.2 million compared to its level in February 2020 before the closures began. it has become fierce, resulting in solid wage gains in the industry. Average hourly earnings increased in June 2021 by about 7% year-on-year, and this could convince people who have left the industry to return.1

A tightening labor market could also encourage some recent retirees to change their minds. Although the aging US workforce has long been increasing the number of people retiring, COVID brought in a wave of baby boomers, either because of layoffs or concerns about catching the virus, to retire earlier than expected. According to our estimates, by 2020 1.6 million more workers will retire than we had anticipated before COVID. If jobs are plentiful and fears of pandemics diminish, it is likely that not all of these retirements will be permanent.

An acceleration in job creation should bring full American employment closer

A solid line showing actual total employment in the United States begins at about 157 million workers in January 2019. It increases slightly to 159 million in February 2020, falling sharply to about 133 million in April 2020, after it evolves rapidly and then more slowly upwards 152 million in June 2021. A dotted line then shows Vanguard’s forecasts for the expected trajectory of total employment.  This line starts at about 153 million workers in July 2021 and rises to about 160 million by the end of 2022. The forecast includes a significant acceleration from August 2021 to October 2021 in the number of workers busy.
Note: Employment figures represent seasonally adjusted non-agricultural jobs at the end of the month, as defined in the U.S. Bureau of Labor Statistics.
Sources: U.S. Bureau of Labor Statistics and Vanguard Calculations as of July 2, 2021.

Our positive outlook is based on a significant acceleration in the recovery of the labor market in the coming months. If labor supply improves and demand remains strong, the unemployment rate could fall significantly to about 4% by the end of the year and about 3.5% by the second half of 2022, so that the ‘economy would return to full employment.

On the other hand, if we are wrong and the labor market does not pass this critical test of closing the earnings deficit, it could mean that we have underestimated some more lasting or even permanent changes caused by the pandemic. This would be a negative signal for the wider global economic recovery in the US.

1Source: United States Bureau of Labor Statistics.

I would like to thank avant-garde economist Adam Schickling for his invaluable contributions to this comment.

“See you in September: critical test of the labor market”, 5 out of 5 based on 243 valuations.

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