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Investment Commentary

What Can the Jobs Market Tell Us?

By Brian Andrew | Johnson Financial Group • February 11, 2021

4 minute read time

Each month, the U.S. Bureau of Labor Statistics provides an update on the jobs market. In the pandemic environment, this report provides important signals about the health of the economy and its future prospects. Last Friday’s report was no exception.

Like most economic data, unemployment figures come in many variations, so paying attention to the headline number alone can lead you astray in your assessment of the economy’s health. In this case, the unemployment rate was reportedly 6.3%, down from 6.7% the month before and the economy created a seasonally adjusted 49,000 jobs.

While these figures suggest progress in the labor market, there is much more to the story.

The Big Picture

The number of unemployed people remains high at 10.1 million, versus the pre-pandemic low of 5.7 million. Not counted in this total are the seven million people who would like to work but are not currently seeking employment. On the other hand, the number of people on temporary layoff declined to 2.7 million—well below the pandemic high of 18 million in April of last year.

Still, there is a significant decline in leisure/hospitality employment relative to pre-pandemic levels. Over the last year, this segment of the economy’s employment is down almost 23%. So while much of the economy is experiencing a meaningful recovery, the industries surrounding leisure and hospitality have lost more than 597,000 jobs in the last two months alone.

In the same period, professional and business services rose by 97,000, but more than 81,000 of those jobs were not permanent. Rather, they are temporary positions in the accounting segment for tax preparation.

One area usually thought of as an economic bright spot, health care, has also seen a decline in the labor force. Since February 2020, health care employment is down by 542,000. This seems to be a result of people postponing elective surgeries, regular check-ups and dental visits over concern about the potential for infection.

Bust to Boom

Fortunately, these more discouraging figures bely the pent-up demand likely to cause the economy to accelerate later in 2021. The daily vaccination rate has risen toward two million per day from less than 200,000 per day just 45 days ago. As the economy reopens, pent-up demand will be released. This should cause an increase in jobs, which will result in higher personal income growth rates and consumption. Given that the consumer is still over two-thirds of economic activity, this growth in employment and income will be a boon, particularly for sectors with the most pent-up demand—including health care, education and hospitality.

Manufacturing remains an economic bright spot. Employment has continued to grow, with the sector’s jobs rising by 803,000 since April of last year. Still, the sector’s unemployment rate is almost double a year ago and jobs in manufacturing remain more than 500,000 below February 2020.

We believe that we’ll continue to see employment growth, particularly in the services sector, where over 23% of employees are still working from home, and in manufacturing where the economic recovery is having a big impact.

If you’ve had occasion to hire a contractor for a home remodel project or are building a house, you know that labor in the construction industry is still tight. The most recent jobs report showed a slight decline—less than 8,000 jobs—which may reflect the seasonal adjustment rather than the trend.

The combination of low interest rates and a growing family-formation rate is leading to growth in the residential housing market, which in turn is contributing to strengthening employment. In fact, housing demand is stronger than it has been in years.

We believe that housing will remain a bright spot in the economy going forward and provide more fuel to move economic growth forward at a faster pace as we move through the year.

The Bottom Line

The labor market will remain volatile this year as parts of the economy either remain shut down or go through fits and starts as they begin to reopen. Still, we believe the trend is higher and expect the unemployment rate to be much lower than the current 6.3% by year’s end.


Brian Andrew

Brian Andrew

Chief Investment Officer | Johnson Financial Group

As Chief Investment Officer, Brian Andrew leads Johnson Financial Group's investment strategy to provide consistent, actionable investment solutions for our clients.


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