Job Growth Continues to Fall Short of Expectations

Employers: It’s Not You, It’s Them

You’ll remember that April’s employment report fell dismally short of the mark. Many economists had been predicting that the nation added more than 1 million jobs that month. The revised number stands at 278,000. 

Chastened by April’s miss, economists dialed down their consensus forecast to 671,000 jobs added in May. While it is true that this time they missed by less (job growth came in at 559,000), disappointment still runs rampant. Though they’ll never admit it publicly, many of these economists were expecting a massive statistical bounce back in job creation. The consensus number was really, “this is what I’ll put out there, but secretly I’m expecting a lot more job growth.” Psyche.

Some may ask, “Well what were you predicting, smarty pants?”

Is that really important? Must we do this now?

Ok, let’s do it now. The issue is not one of labor demand, but labor supply. The key word here is “churn.” Each month, millions of people are hired. Millions of people are also separated from employment. Let’s take an example. In March of this year, the nation created several hundred thousand jobs on net. Fine, but that’s the net number. That month, more than 6 million people were hired, and more than 5.3 million people were separated from employment.

What’s happening now is that for all kinds of reasons (retirement, punched my boss, refuse to work for a Steelers’ fan, corporate downsizing, compromising Instagram photos, etc.), people are being separated from employment, and not enough people are accepting available opportunities to generate the pace of net job growth we all want to see.

In other words, it’s not about labor demand, it’s about supply. The labor force actually shrank by 53k last month despite a record number of available unfilled job openings. Labor force participation slipped to 61.6%.

My staff of Millennials suggests that their generation is not to blame. Ridiculous. Of course they are. Have you ever seen such a concentration of ganja-smoking privilege in your life? 

But I’ll stipulate that they are not the only ones to blame. Baby Boomers have been retiring early in large numbers. The labor force of Americans 65+ is down 6.6% since the start of the pandemic. The labor force participation rate for that demographic fell from 20.8% in February 2020 to 18.7% in May 2021. For some, a booming stock market and rising home valuations have helped pave the way. The bigger reason is that many Boomers lost their jobs during the early stages of the pandemic and just said enough is enough.

We might still have some nice months of job growth during the summer for seasonal reasons, but one suspects that it will not be until September that the labor market begins to function more smoothly. On September 6th, those supplemental federal unemployment insurance benefits lapse. With kids going back to school in person in large numbers, that should also free up moms and dads to re-engage the labor force in big numbers. 

People are also spending down those stimulus payments, which induces more people to get off the couch and stop playing Call of Duty. Vaccinations are on the rise. All of this strongly suggests that if we just wait a few months, we’ll see some beautiful employment numbers. Would you believe it if I said that I predicted 600k for May? There’s a television interview of me on WBFF-Baltimore saying precisely that—so there.

You can read more of my penetrating insights regarding the construction industry’s employment situation at Associated Builders and Contractors.

Three Key Takeaways

1. At May’s pace of employment recovery, we won’t be back to pre-pandemic levels of employment until June 2022.

2. Prospective workers have become like consumers in their search for jobs. They have become highly selective, including along the dimension of flexible work hours, which means that many employers are waiting longer than usual to fill jobs.

3. Things will never be the same. The pandemic has permanently altered our collective behavior and priorities. Members of Generation X are now effectively an oasis of virtue. We stand alone.

What to Watch

Labor shortages, materials shortages, and how those shortages will affect costs and project starts.