The biggest question in Friday's jobs report
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Friday, June 4, 2021
Is the labor market loose or tight?
Friday's jobs report is a big one.
After April's disappointing hiring data and some hotter-than-expected inflation data, price pressures and labor competition are the dominant economic stories as we enter an expected summer boom.
And the biggest question investors and economists hope to gain clarity on later this morning is the most basic question facing the labor market at any one time: is the market looser or tighter than we think?
Goldman Sachs economists wrote earlier this month that "we should expect larger-than-normal surprises in the economic data at least over the next several months, but should also put less-than-normal weight on what these surprises mean beyond the very near term."
Commentary that suggests Friday's jobs report won't offer clarity on answering this question.
But ahead of this report it is worth taking stock of the evidence suggesting both states of affairs.
As a general rule, a tight labor market is one in which competition for workers is high and wages are on the rise. In these markets, employees tend to have leverage over employers. A loose labor market is one in which workers are readily available and employers, not employees, have the leverage on pay negotiations.
Last week, we discussed the idea that disappointing hiring trends suggest a labor market that is tighter than you'd otherwise expect given how many remain out of work. As of April, there were more than 8 million fewer people employed in the U.S. than in February 2020, the month before the pandemic was declared.
Unemployment assistance programs rolled out by states and the federal government throughout the pandemic have greatly assisted those out of work. And personal income has surged over the last year leaving consumers sitting on trillions in savings. These programs made up for lost wages and then some, creating competition for employers.
A number of states have rolled back unemployment assistance in an effort to entice folks back to work. We've also covered in the Morning Brief the abundance of programs from big employers to lure workers back — sign-on bonuses, additional scheduling clarity, and higher wages among other inducements.
Unemployment benefits, fears over contracting COVID, reevaluated life choices post-pandemic, and a belief that companies will offer even higher wages in the months ahead for new workers are certainly all a part of the labor story right now. And in a note to clients published last week, Ellen Zentner at Morgan Stanley also suggested that job openings — which we covered last month — along with the quits rate and a rising employment cost index all suggest a tighter labor market than headline unemployment figures otherwise indicate.
But as Neil Dutta, an economist at Renaissance Macro, flagged in an email on Thursday, small businesses continue to staff up rapidly. Paid employment rising at 10.2% of firms surveyed in the Census' Small Business Pulse Survey last week, the most since June, Dutta notes.
"Since late March, more firms have reported an increase in paid employment than a decrease," Dutta writes. "We also continued to see more small firms reporting an increase in hours worked. So, there is obviously a lot of fog in the employment data, but this survey is one example where it looks like employment continues to rise without much evidence of a supply constraint."
Private payroll data from ADP published Thursday ahead of the government's jobs numbers also beat expectations, rising by 978,000 last month against forecasts for a gain of 650,000 jobs.
And so this data suggests a labor market that appears more like what you'd expect to find coming out of recession with millions out of work: ample labor demand into a growth cycle but ample labor supply coming off mass layoffs.
By Myles Udland, reporter and anchor for Yahoo Finance Live. Follow him at @MylesUdland
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