As the pandemic recedes and the economy reopens, we can expect strong job growth in the months ahead. The March figures were a start. We may soon see monthly gains in nonfarm payrolls of a million or more. However, as employment rebounds, labor market frictions are more likely to come into play, reflecting the scarring that has occurred over the last several months. It is unclear how much of this will lead to higher wage and price inflation, but pressures ought to be transitory.
Prior to seasonal adjustment, the economy added 1.3 million jobs last month, or 917,000 after adjustment. Spring is the strongest part of the year for (unadjusted) job growth. Prior to the pandemic, unadjusted payrolls would normally rise by 3.2 million or more between February and June. So clearly, payrolls can expand rapidly without much trouble. Currently, payrolls are about 9 million below the pre-pandemic level and about 11 million below the previous trend (as if the pandemic had not occurred).
The unemployment rate fell to 6.0% in March, but this is a misleading figure, as labor force participation remains well below pre-pandemic levels (61.5%, vs. 63.4%). In addition, there are more than 5.8 million people working part time who would rather have full-time employment. The broad U-6 measure of unemployment, which includes discouraged workers and others marginally attached to the labor force plus those involuntarily working part time, was 10.7% in March. Looking more broadly at the unemployment situation, some workers have been without work throughout the pandemic, some in the industries less directly hit have been let go along the way, and some have moved into and out of short-term employment.
One of the fears early in the pandemic was the issue of scarring. This refers to the destruction of relationships: between firms and workers; between lenders and borrowers; and between sellers and buyers. Scarring gets worse the longer the downturn lasts and is usually a lot worse when the cause of the downturn is a financial crisis. Many small businesses may not exist anymore. Many of the unemployed may not have a job to which they can return. A manufacturer looking for parts may have to struggle for alternatives if a key supplier is no longer in business. Firms may have a hard time locating skilled workers who were furloughed months earlier.