BlackRock Investment Institute

Macro insights

Accelerating restart, not a recovery

The U.S. labor market highlights why we view the current macro environment as an activity restart, not a recovery. Employment has bounced back much more sharply than during a typical business cycle recovery. Why? Firms need to rehire faster to resume operating as halted activity comes back online and returns to pre-Covid levels.

Employment in contact-intense services – think restaurants and hotels – is still far below pre-Covid levels. Leisure and hospitality employment is still 20%, the biggest gap of all industries, yet this is up sharply from a trough of nearly 50% in the spring of 2020. Such services activity, comprising over one-fifth of total consumer spending, has a lot to gain from the release of pent-up demand in coming months, independent of further policy support. We see further rapid payroll gains through the year as the economy normalizes.

Not a typical recession

The chart shows how much sharper the fall in employment was than a 'traditional' recession.

Sources: BlackRock Investment Institute, with data from Refinitiv Datastream, March 2021. Notes: The chart shows the level of U.S. nonfarm payrolls following business cycle peaks as defined by the National Bureau of Economic Research. Employment is indexed to equal 100 at the peak of each respective cycle.

Last week’s U.S. jobs report underscored how the U.S. labor market shock has been strikingly different from regular business cycle recoveries. Payrolls are rebounding sharply after the sharp initial decline. Employment had initially dropped by around 15% as worsening virus dynamics caused severe restrictions to be imposed. The overall employment shortfall is now 6% – similar to the trough of the global financial crisis (GFC). Yet it took more than two years for payrolls to approach that trough after the GFC – highlighting how slow the recovery was due to the debt deleveraging that ensued.

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