In 2021, the great America job machine cranked into overdrive following the devastation caused by the coronavirus pandemic in early 2020.
Consider: At the start of the year, a meager 49,000 jobs were added following the prior month’s loss of 140,000 jobs. The unemployment rate stood at 6.7% and 10.7 million Americans were unemployed.
One year later, data from the Labor Department shows that 210,000 jobs were added in November, the unemployment rate fell to 4.2% and 6.9 million people were without employment.
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The Federal Reserve now projects the unemployment rate will reach 3.5% by the end of 2022, the record low rate it hit one month prior to the start of the coronavirus pandemic in March 2020.
But on the flip side, more than 11 million jobs are open, with fewer than one person available to fill each one.
Those are the headline numbers, but many measures of the labor market show the extent of the recovery, which prompted Fed Chairman Jerome Powell to say earlier this month that “amid improving labor market conditions and very strong demand for workers, the economy has been making rapid progress toward maximum employment.”
Lockdowns and other restrictions imposed on businesses and consumers at the start of the pandemic sent the unemployment rate to 14.8% in April 2020 as the number of unemployed reached 22 million. As recently as September, the Fed was still projecting unemployment to be at 3.8% by the fourth quarter of next year, which would be a low number by historical standards. Now, some Fed members see the rate dipping as low as 3.2%.
As of November, the economy has added an average of 555,000 jobs a month in 2021. Most economists consider a level of 200,000 to be sufficient to offset growth in the working-age population – and then some. But, like most economic data during the pandemic, 2021 has seen some wild swings – and also some massive revisions to the numbers after the initial estimates.
In August, for instance, many were quick to brand the 235,000 jobs created as “disappointing,” given expectations following July’s blockbuster gain of 943,000 jobs. Two months later, August was revised upward by more than double, to 483,000, in what turned out to be the biggest upside positive change in nearly 40 years.
In the past three months, job gains have averaged 378,000. The final year-end numbers will be released on Jan. 7.
The recovery in jobs from the depths of the pandemic stands in stark contrast to what happened after the financial recession of 2007 to 2009. In October 2006, unemployment was 4.4%, then spiked to 10% three years later. It took six years, until April 2014, before government officials declared the economy had recovered all of the lost jobs and the unemployment rate had only fallen to 6.7% by May of that year. No wonder many branded it the “jobless recovery.”
Ironically, some economists used the same term earlier this year to describe the state of the labor market before vaccinations became widespread and people began returning to old habits like dining in restaurants and traveling.
“We’ve now recovered 83% (18.5 million) of the 22.4 million jobs lost in March and April 2020,” Janelle Jones, the chief economist of the U.S. Department of Labor wrote in her blog following the release of the November jobs numbers. “After the Great Recession, the unemployment rate took far longer to recover, and for this recession the Congressional Budget Office didn’t expect the rate to get this low until 2024.”
It is somewhat counterintuitive, but another way to measure the health of the labor market is to look at how many people leave their jobs. The reasoning is that people only quit a job when they have something better. But the pandemic has called that assumption into question, with people quitting their jobs because of burnout, health issues or other reasons. In 2020, a much larger than normal number of people of retirement age decided to call it quits.
Whatever the reason, people have been leaving their jobs – many for better ones – in massive numbers. The most recent data, released in December, showed that the quits rate, the number of people leaving their jobs as a percentage of total employment, in October was the second highest on record at 2.5%, just below the record 3% in September. More than 4 million people left their jobs. The rate rose in late summer as the delta variant of the coronavirus took hold, with the rate among workers in the hospitality and food service sectors running at twice the overall rate. Current data does not reflect any impact from the new omicron variant.
Weekly Unemployment Claims
For the week ending Dec. 18, the number of Americans filing first-time claims for unemployment benefits reached a level of 205,000 after hitting 188,000 two weeks earlier – the lowest level in a half century. A year ago, the number was 803,000. The number has varied, as extended benefits passed as part of the stimulus packages from Congress expired and amid surges of the virus. But the overall trend has been down, breaking the 400,000 mark around Memorial Day and then dropping below 200,000 in November.
Economists like to look at this measure as a quick snapshot of the health of the labor market. The rate rose steadily from the late 1970s through 2000, then began to decline as the Great Recession wreaked havoc on the economy. It recovered somewhat in early 2016 and then hit a pre-pandemic high of 63.3% in February 2002, then cratered as the pandemic hit, dropping to 60.2% in April 2020. It bounced around a bit earlier this year and in November stood at 61.8%, up from 61.7% a month earlier.
Early in the recovery from the pandemic, participation rates were uneven as lower-wage workers, women and minorities did not come back into the workforce as quickly as higher earners who had more opportunity to work remotely.
But Fed Chairman Powell said earlier this month that the improvement in participation is becoming more widespread.
“The recent improvements in labor market conditions have narrowed the differences in employment across groups, especially for workers at the lower end of the wage distribution, as well as African Americans and Hispanics,” he said.
Wages were largely stagnant during the recovery from the Great Recession that began in 2009 but have risen during the pandemic as companies have been forced to compete more aggressively for labor in a tight market. The movement for a minimum wage level of $15 has been embraced by several large employers such as Target, Southwest Airlines and drugstore chains CVS Health and Walgreens. Wages rose at an annual rate of 4.8% in November, according to the Labor Department. However, with consumer inflation running at 6.8% in November, those wage increases have not kept pace with rising prices. If inflation subsides in 2022, as government and private sector economists predict, the wage increases will likely stick and mean workers will see some extra money in their pockets.
Many economists – and especially the Biden administration – tout the aggressive federal response to the pandemic, including more than $5 trillion of stimulus, for the quickness of the jobs recovery. But while that has undoubtedly played a major part, the fact is the pandemic was a different kind of economic shock than the financial overheating that occurred in the last recession or the “irrational exuberance” that led to the dot-com bust of the late 1990s.
The recession of 2020, sharp and short-lived, was a health crisis rather than a financial crisis. It will take years for economists to learn the lessons of 2020 and 2021, but for now the rapid recovery of jobs is looking like one of the positives.