Despite the encouraging March jobs report, full employment remains far away. A simple way to see the depth of the jobs hole is the employment to population ratio, which accounts for both job loss and labor force dropouts. At 57.6 percent, it sits over 3 percentage points (representing over 9 million jobs) below the pre-pandemic level, which the Federal Reserve (Fed) has identified as a key marker on the path toward full employment. But consensus forecasts imply the ratio will struggle to return to 2019 levels despite strong gross domestic product (GDP) growth, reflecting industry shifts and the adoption of labor-saving technologies accelerated by COVID.
Still A Long Way to Go to Reach Full Employment
Source: Guggenheim Investments, Haver Analytics, Bloomberg. Data as of 3.31.2021. *Employment to population adjusted for misclassification of workers. **Change in payrolls converted to household employment at a ratio of 0.9.
Additionally, full employment has taken on a new definition under the Fed’s new framework, with aggregate measures like the unemployment rate no longer sufficient in gauging labor market progress. Some Fed officials now say that full employment was not achieved even when the unemployment rate was 3.5 percent.
Closing labor market disparities is now an explicit objective of monetary policy, and these disparities often do not start to shrink until well into an expansion. With employment gaps between racial groups, wage levels, and educational attainment at relatively wide levels, it will take several years before the Fed is satisfied the “maximum employment” objective has been reached. With inflation also set to remain subdued, we believe Fed rate hikes are further off than the market expects.
More Progress Needed for "Broad-Based and Inclusive" Full Employment
Source: Guggenheim Investments, Haver Analytics. Data as of 3.31.2021. Three-month moving averages shown. Shaded areas represent recession.
From the Office of the Global Chief Investment Officer, Scott Minerd
By the Guggenheim Investments Macroeconomic and Investment Research Group
- Brian Smedley, Chief Economist and Head of Macroeconomic and Investment Research
- Matt Bush, CFA, CBE, U.S. Economist, Macroeconomic and Investment Research
Important Notices and Disclosures
Investing involves risk, including the possible loss of principal. Investments in fixed-income instruments are subject to the possibility that interest rates could rise, causing their values to decline. High yield and unrated debt securities are at a greater risk of default than investment grade bonds and may be less liquid, which may increase volatility.
This material is distributed or presented for informational or educational purposes only and should not be considered a recommendation of any particular security, strategy or investment product, or as investing advice of any kind. This material is not provided in a fiduciary capacity, may not be relied upon for or in connection with the making of investment decisions, and does not constitute a solicitation of an offer to buy or sell securities. The content contained herein is not intended to be and should not be construed as legal or tax advice and/or a legal opinion. Always consult a financial, tax and/or legal professional regarding your specific situation.
This material contains opinions of the author or speaker, but not necessarily those of Guggenheim Partners or its subsidiaries. The opinions contained herein are subject to change without notice. Forward looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. No part of this material may be reproduced or referred to in any form, without express written permission of Guggenheim Partners, LLC. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information. Past performance is not indicative of future results.
Guggenheim Investments represents the following affiliated investment management businesses: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Distributors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Corporate Funding, LLC, Guggenheim Partners Europe Limited, Guggenheim Partners Fund Management (Europe) Limited, Guggenheim Partners Japan Limited, GS GAMMA Advisors, LLC, and Guggenheim Partners India Management.
© Guggenheim Investments
Read more commentaries by Guggenheim Investments
