BlackRock Investment Institute

Macro insights

Putting labor market data in context

Volatility in recent macro data is a timely reminder why it is important not to confuse the ongoing economic restart with a typical business cycle recovery. April’s U.S. employment report was a major miss – with 266,000 new jobs versus a consensus expectation of about 1 million.

Playing catch-up

Chart showing U.S. job losses and gains after recessions

Sources: BlackRock Investment Institute, with data from Refinitive Datastream, May 2021. Notes: The chart shows U.S. payrolls during recessions, and from the Covid shock, and the time needed to recover from those losses. Series are indexed to 100 at the start of the recession.

We believe our restart framework keeps this data volatility in perspective. Turning large parts of the economy back on has already led to some eye-watering activity growth and inflation rates. Employment plunged as the businesses were brought to a deliberate halt when the Covid-19 shock hit. Payrolls contracted far more quickly than is typical in a business cycle recession. The subsequent labor market restart has been rapid – even if there is still a large gap to make up, as the chart shows.

The impact of the economic reopening is clear in sectors hardest-hit by the lockdowns. For instance, employment in leisure and hospitality rose nearly 2.5% on the month – and are at the top end of their post-Covid ranges. We expect the rapid U.S. vaccine roll-out should translate into strong labor demand in coming months.

The shortfall in total employment below full employment is only one part of the broad set of labor market indicators that the Fed is watching under its new policy framework. Fed officials have said it will consider other indicators, including labor force participation, underemployment and outcomes for particular groups such as minorities, besides headline employment and unemployment rates. Such a broad range of indicators points to even more room to run for the labor market to get back to full employment than the headline numbers may suggest.

We see job gains picking up again as the reopening broadens. Yet we see activity and labor market data being less relevant for the Fed – and ultimately for markets. Inflation outcomes and the inflation outlook will matter more for Fed policy decisions under its new flexible average-inflation targeting framework, which aims to make up for past inflation misses. See our earlier macro insights for more.

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