A Tighter Labor Market Much Sooner

This is the exciting labor report we have been waiting for forever since the positive vaccine data was released in early November. It is a report worth celebrating because it is the beginning of what should be a few months of very strong job creation in which most of the jobs lost due to the pandemic will be recovered. It is about to be ‘game, set, match’ for the pandemic economic weakness. Non-farm payrolls in February were revised higher from 379,000 to 468,000. Private job creation was revised up from 465,000 to 558,000. It wasn’t a bad month. It’s just that job creation at that rate would mean it would take years for full recovery. We might actually reach near full employment later this year.

March’s job gain was 916,000 which was above the consensus of 658,000 and just below the highest estimate which was 1 million. As you can see from the chart below, the decline off the employment high before the pandemic is now less than the trough of the Great Recession. However, it’s still worse than any other post-WWII recession. Specifically, employment is 5.51% off its high. We mentioned last week that the ADP report showing private sector employment 6.97% off its high was too negative. We think it’s great that there is still so much room for job creation to run. Within a few months, investors will switch to worrying about a shortage of workers. The narrative will dramatically shift this summer when inflation is raging.

We Were Right Again

We predicted a few weeks ago that the models using March’s data would show a much quicker recovery if job creation stayed at that clip. The chart below shows the final results. As you can see, if job creation continues at March’s clip, we will get back to the payroll growth trend in June 2022. That sounds great, but we will do better. Job creation in April will be better than March. Eventually, job creation will start to slow when we approach full employment, but we are still pretty far away from that. As we mentioned, investors are going to wish there was even slacker in the labor market within a few months. Right now, we are in a great position because there is still a ton of slack to work with as demand is accelerating.

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