Initial claims and people covered by UI are slowly trending downward, but still remain at very high levels. The continued weakness of the labor market was also underscored by the January jobs report. Yes the unemployment rate was down, but this was partially due to people dropping out of the labor force (and therefore not counted as unemployed). The number of potentially misclassified employed people was up from previous months (848,000), and could have raised the unemployment rate by as much as 0.6%.
The paltry 49,000 payroll jobs gained was also overstated. Public and private school employment showed increases (+120,000), but much of this was a statistical illusion caused by “seasonal adjustment” rather than new hires; since less workers were hired earlier in the school year, there were less people to lay off than in a typical January. We remain well below normal employment levels in education, as state and local governments wait for federal aid and schools remain closed in parts of the country.
Some are pointing to an increase in temporary help jobs (+81,000) as an encouraging sign, since that normally signals employers are getting ready to hire more. But times are not normal, and it is hard to get excited about eighty-thousand more temp workers while we remain 9.9 million jobs below February 2020 levels. This is an industry to watch, but not necessarily in a good way; companies could look to temp help and contractors instead of rehiring full time employees in an effort to reduce costs after COVID.
I think Nick Bunker at Indeed.com summed it up well: “This report shows that the labor market is treading water. You can tread water for a while when you are close to shore, but you cannot do it when you are miles away. The labor market is miles away from where it needs to be.”
The dangers of treading water far from shore are evident when looking at the Groshen pandemic labor force disruption model. Over the past few months this measure has been stable (8.2% in November and December, 8.1% in January), but the situation is arguably getting worse as the composition of the disrupted changes. People are now more likely not to be connected to an employer (59%) than connected (41%), either because they are not on temporary layoff (rather just outright fired), or have dropped out of the labor force completely (and are not looking for work). Another troubling sign is the growing share of the “long-term unemployed” (27+ weeks). These unconnected and long-term unemployed people may prove more difficult to bring back in to the labor force once the pandemic has passed.
But there are reasons to be optimistic. The Biden administration is giving a jolt to the vaccination effort, increasing vaccine manufacturing through the Defense Production Act, and directing the Pentagon to lend FEMA a hand in getting shots into peoples arm’s. The Democrats also appear to be going big on COVID relief through reconciliation, bypassing the GOP to the tune of about $1.9 trillion. This will, among other things, provide resources to help state and local governments keep their services intact and avoid layoffs of frontline workers; open schools safely; test and vaccinate the American people; help our healthcare workers safely treat COVID patients; and prime consumers to consume, travel, and otherwise stimulate the economy once it is safe to do so again.
Keep treading America, help is on the way!