Friday, June 3, 2022
Labor Markets Are Tight With Little Signs Of Loosening
Employment in May grew by 390,000, driven by strong gains in leisure and hospitality, in professional and business services, and in transportation and warehousing. Job growth does not exist in an economy that has a high chance of going into a recession. The LPL Chart of the Day shows the 3-month average gain dipped from the highs from last year. “A softer trend is consistent with the slowdown in economic growth in the coming quarters but not outright contraction” explained LPL Financial Chief Economist Jeffrey Roach. Unemployment in May was 3.6%, unchanged for the third consecutive month and average hourly earnings increased 5.2% from a year ago. In this post, we look at the lingering effects from the pandemic and why the labor market is stubbornly tight.
Unemployment Is Too Low, Too Long For Some People
One reason that unemployment is low is from the large amount of individuals not in the labor force. Relative to pre-pandemic levels, the economy has an excess of roughly 5 million people who do not have a job nor are looking for a job. The Bureau of Labor Statistics does not include individuals without a job in the unemployment rate if those individuals are not actively looking for work.
The long-term unemployed account for roughly 23% of all unemployed persons and should be a concern as “skill erosion” sets in for those out of work for an extended period. Even after social distancing restrictions lifted in many areas, schools and day care facilities remained constrained last year, causing many caregivers to remain unemployed. Those unemployed for over 27 weeks are considered long-term unemployed and if this category remains elevated for an extended period, the economy could have lasting scars.