While the jobs reading appears to say otherwise, many people have not returned to the labor market. From February 2020 through April 2020, during the first two months of the pandemic in the US, the number of people age 16 and up participating in the labor force dropped by close to 3.9%, with a loss of 8.2 million participants in between February and April, 53% of which were women, according to S&P Global Ratings Economics calculations. The labor force participation rate for people age 16 and up plunged to a 49-year low.
When we consider current labor force dynamics relative to pre-crisis trends, conditions look far worse. Both historically, since 1948, and over the last two years leading up to the pandemic, the US workforce has grown, on average, by around 0.1 percentage points per month, according to our calculations. Since the pandemic, average monthly labor force gains have dwindled to less than zero as retirees speed up their pace of retirement and younger families avoid the workplace because of the pandemic. Given that the economy has grown significantly since February 2020 while the workforce slowed dramatically, we are 3.7 million workers short of the jobs market pre-pandemic trend growth, with the majority (2.8 million) of that shortfall being women.
It’s likely that many women are still dealing with pandemic-related childcare issues despite the country being open for business. And with many women working in touch-sensitive services sectors, such as leisure and hospitality, their exit helps explain the hiring challenges these businesses face.
In real terms, paychecks have shrunk
The Fed’s next move could slow hiring
Still, as we inch toward recession, the Fed taking stronger action could lead to a hiring slowdown and rising unemployment. If either of those takes hold next year, the “cure” for the US economy and jobs market may feel worse than the disease.
We expect that the Fed raising interest rates and reducing its balance sheet will be enough to eventually begin to tame inflation and help restore real wage strength and purchasing power. The question is whether it will push the US into recession and weaken the jobs market, as well.