April Jobs Report Preview: A Job Gains Surge, Part II

This Friday, the Bureau of Labor Statistics will release the April jobs report. After almost a million jobs added in March, is another surge ahead? In short, yes. The April report is likely to show another swell in jobs as the recovery moves forward. These are four things I’m watching for in Friday’s jobs report:

Will Labor Shortages be Transitory as the Economy Reopens?

Restaurants are reporting labor shortages, and there is evidence to suggest less availability of workers, especially in the last two months. Google Trends data shows that searches for jobs dropped in mid-March before slowly recovering in mid-April. The National Federation of Independent Business's March survey reported that 42 percent of small businesses had positions they're unable to fill, the highest since the survey began in 2016.

Any labor shortages, especially in industries like food services, are likely being driven by the ongoing pandemic. Even as businesses reopen and their demand for labor grows accordingly, a notable number of workers are still less willing to dive back into offices or customer-facing roles when health concerns and childcare needs are still an ongoing challenge. Health risks and higher childcare costs also mean pre-pandemic wages are not necessarily sufficient to attract new workers. Additionally, competition from other industries like e-commerce may be drawing workers away from in-person roles. Lastly, while more generous unemployment benefits do likely reduce job search intensity, it seems that right now the pandemic is the more likely culprit.

Even if concentrated labor shortages mute overall job gains, headline job growth is likely to remain strong as the economic recovery continues. Once the pandemic abates and the economy fully reopens, labor force participation will be an important metric to track to ensure that workers who are currently out of the labor force eventually return.

Steady Wage Growth May Not Last

Traditionally, labor shortages are followed by wage growth as employers increase pay to attract scarce workers. Unfortunately, this crisis has scrambled one prominent source of wage data—average hourly earnings, an important measure of pay used to track wage growth. Layoffs of low-wage workers have driven average hourly earnings up throughout the crisis and, with 8.5 million Americans still out of work, it appears this metric is unlikely to normalize soon.

However, other data like the Atlanta Federal Reserve's Wage Growth Tracker shows that wage growth has stayed surprisingly steady during the crisis, roughly level with pre-pandemic conditions. This is particularly striking because the pre-pandemic labor market was considered fairly tight, especially for low-wage workers. In fact, employers are reportedly offering wage increases or hiring and retention bonuses to keep workers on board.

However, it is unclear whether this wage growth trend will persist. If labor shortages are being artificially imposed by the pandemic, then, as the public health situation improves, the labor market may transition from a pandemic recovery to a more traditional recovery where millions of unemployed workers compete for the same jobs, thus holding wage growth down. Similarly, if employers foresee looser labor market conditions in the coming months, they may be hesitant to lock in permanent wage increases now rather than offering bonuses or temporary pay bumps. By comparison, after the Great Recession, it took over a decade for wage growth to near pre-recession levels, and it remains to be seen how quickly wage growth will recover post-pandemic.

Recovery Poised for Summer Surge

While we are not out of the woods yet, the combination of the improving public health situation and economic stimulus are likely to drive strong economic growth this summer. Ongoing widespread U.S. vaccine distribution offers a light at the end of the tunnel and if the economy can avoid any speed bumps, these tailwinds should help accelerate the recovery and keep monthly job gains over 1 million.