The May jobs report is out, and it’s frustrating. Somehow, the US has missed its new jobs target again, even as the economy is slowly but surely recovering to pre-2020 levels. While half a million jobs were added to the workforce in May, the numbers are still falling short of projections, making the markets harder to predict moving into the summer.
The job report, released by the US Department of Labor on Friday, indicates stubbornly slow growth. The reasons for that slow pace are still the topic of argument among analysts. Some have argued that the ongoing unemployment benefits from Washington are keeping people out of work. Others contend that comparatively low wages in the retail and food service sectors have diminished workers’ desire to join these fields.
Market Moving Slowly
In response to the sluggish recovery, the markets ticked up ever so slightly on Friday. In all, the economy is roughly eight million jobs below where it was at the start of 2020 before the current economic instability sent things sideways.
It’s not all bad news, though. The US is reopening faster than some other countries. Efforts aimed at getting things back to normal are taking off more easily here than in places like Japan or the UK. The public has a large appetite for a return to pre-2020 activity, and analysts are predicting large amounts of partying, tourism, and leisure spending through the back half of the summer.
One of the main concerns that analysts raised during 2020 was deferred spending. When lockdowns were in full swing and vacations were canceled around the country, many families just held on to the savings they’d held back for their trips. This year could see a major upswing in tourism as deferred spending is put into action this summer.
What Are Analysts Saying?
“We expect that in the coming months there will be a significant rise in the labor force participation rate because several factors point in that direction,” wrote UBS economist Pablo Villanueva ahead of the jobs report’s release. Villaneuva pointed to schools reopening and state unemployment benefits winding down as evidence that people would be rejoining the workforce in higher numbers over the summer.
School closures have been a major focus of economists throughout 2020 and into this year. Distance learning kept kids home throughout the year, and parents without the disposable income to hire childcare professionals needed to figure out how to supervise their children all day. This, in turn, added pressure to stay home from work, which forced hundreds of thousands of Americans into a “stay-at-home” role that they weren’t in before 2020.
“All in all, our view on the labor market is one of underlying strength during the coming months but with abnormally high levels of noise,” Villanueva continued.
The Labor Shortage
It’s impossible to talk about jobs in the first half of 2021 without talking about the labor shortage. Demand for labor is high, but the supply simply isn’t there. Some analysts fear this could be evidence of a fundamental realignment of hourly workers’ priorities. For the time being, it’s hard to say whether this shortage will be filled as state-level unemployment benefits lapse, or if hourly workers will seek jobs in other sectors.
Financial Policy
Another topic that is under scrutiny today amidst the news of the jobs report is the Federal Reserve’s current monetary policy. Since the darkest days of the downturn in 2020, the Fed has been aggressively purchasing assets and sinking money into the economy to help push through to recovery. The Fed has authorized roughly $120 billion per month to be spent on securities and Treasury bonds, keeping the wheels greased in the US economy.
Earlier this week, some members of the Fed were talking about the potential of winding down this aggressive policy as the economy showed signs of a swift recovery. However, April and May showing back-to-back misses in terms of job growth predictions could be evidence enough to convince the Fed to keep this policy in place for at least another month.
Slow and Steady Wins the Race?
This slow return to normal could be a good thing, in spite of the seemingly grim numbers. A red-hot economic recovery could lead to unusual bubbles in the market and instability that could result in “aftershock” crashes. Slower growth is often more sustainable, giving some investors confidence that a long return to normal could be a more stable scenario than a swift bounce back to pre-2020 levels.
And this can be seen playing out in the cautious optimism of the market on Friday. As of the time of this writing, the relatively lukewarm news of the May jobs report has been met with excitement by the major markets, with movement on the NASDAQ up over 1.3 percent on the day. Things are getting better, one step at a time.
