Author: David I. Templeton, CFA, Principal and Portfolio Manager
Last Friday's Nonfarm Payrolls was reported at 531,000, better than expectations of 450,000 and the prior report for nonfarm payrolls was revised higher to 312,000 from the earlier 194,000. This brings the recovery from the pandemic low in total nonfarm payrolls to 18.5 million, but still 4.2 million below the February 2020 peak.
The below chart highlights some data points from the report. On the surface, the 4.6% unemployment rate looks favorable, yet payrolls are 4.2 million below the February 2020 level. Also, the participation rate of 61.6% is at a level last seen in 1976 and below the pre-pandemic level of 63.4%. Before the financial crisis in 2008/2009, the participation rate reached 66.4%.
In reviewing the participation rate for the various age cohorts, the 55-year old and over group has seen little improvement in its participation rate following the pandemic low in May 2020. Each of the other age cohorts below have seen steady improvement in their participation rates.
The pandemic may have changed individuals' desire to work. The recovery in real estate values and growth in the stock market, i.e., increased wealth effect, have potentially made employment less necessary. This would have broad economic implications as more companies look to move production back to the U.S. and need to fill open positions. Additionally, the recent passage of the infrastructure package by Congress might place further stress on the supply chain; thus result in increased inflation pressure.
The labor market needs to see further improvement as the economy continues to put the pandemic in the rearview mirror. Finding employees likely remains a difficult challenge for companies though. Job openings remain 3 million higher than the number of unemployed and the number of unemployed at 7.4 million is 1.7 million above the February 2020 pre-pandemic level. Undoubtedly, companies will continue to be challenged to fill open positions resulting in a continued mixed labor market picture.
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