Recovery back on track - Capital Economics
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Recovery back on track

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Written by Andrew Hunter
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With virus cases falling and containment measures being eased, we expect the partial reopening of the leisure and hospitality sector to translate into a 500,000 increase in non-farm payrolls in February.

With virus cases falling and containment measures being eased, we expect the partial reopening of the leisure and hospitality sector to translate into a 500,000 increase in non-farm payrolls in February.

Non-farm payrolls increased by a modest 49,000 in January, reversing only part of the 227,000 slump in December. But that weak recovery was because the employment survey was conducted in the first half of the month, with the subsequently reported strong gain in retail sales demonstrating that the slower virus spread and renewed fiscal stimulus made a big difference over the month as a whole.

A growing number of states have eased restrictions on bars and restaurants. Within the retail sales data, the 6.9% jump in food services last month illustrated that the removal of restrictions was having a more positive impact than the fall in leisure & hospitality sector payrolls implied. The OpenTable restaurant data also point to a clear recovery, with diner numbers rebounding in early February to their highest level since mid-November. (See Chart 1.) That implies a rebound in food & drink services payrolls of close to 400,000, with employment across the rest of the leisure & hospitality sector also likely to have picked up.

Chart 1: Restaurant Diners & Payrolls

Sources: Refinitiv, OpenTable

Despite the boost to demand from December’s fiscal stimulus, the evidence suggests that employment growth outside the leisure sector remained muted last month. Initial jobless claims have started to drop back following the upturn late last year but, while the Markit composite PMI rose to a six-year high in February, the employment component was much weaker, dragged down by a further fall in services. (See Chart 2.) The severe winter storms in Texas arrived too late to have much impact on the payroll survey week, but heavy snowfall in the Northeast earlier in the month may have weighed on employment in some sectors.

Chart 2: Markit Employment PMIs

Source: Markit

Even if non-leisure sector employment fares no better than it did in January, however, when it rose by 110,000, that would still point to overall non-farm payrolls rising by 500,000, which would be the strongest monthly gain since October. Barring a renewed flare-up in virus cases, jobs growth will accelerate further over the coming months as fiscal stimulus supports demand and the vaccine rollout allows for a widespread reopening of the economy.

With employment on the alternative household survey measure having run slightly ahead of payrolls in recent months, it may not rise quite as far and, alongside a likely rebound in the labour force, that suggests the unemployment rate may have been little changed at 6.3% last month. But that should represent only a blip in what is likely to be a continued downward trend this year.


Table 1: Employment Data

Labour Market Indicators

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb1

Implication for Payroll Growth

Jobless Claims (Monthly Ave.)

1,369

993

870

791

741

836

850

824

Better

Jobless Claims (for week including the 12th)

1,422

1,104

866

797

748

892

875

841

Better

Challenger Job Cut Announcements (SA)

285.6

124.3

125.9

84.4

64.7

92.8

67.3

Better

Job Openings Rate (%)

4.6

4.3

4.4

4.5

4.4

4.5

Better

Markit Manufacturing Employment Index

49.6

52.7

52.5

51.9

51.7

52.2

54.7

55.6

Better

Markit Services Employment Index

51.0

55.6

55.1

53.4

57.8

53.4

51.1

50.9

Worse

ADP Private Payroll Employment Survey

216

482

754

409

299

-78

174

Better

CE Estimated Change in Non-Farm Payrolls

1,000

1,000

800

600

400

-100

0

500

Consensus Forecast for Non-Farm Payrolls

1,600

1,400

850

600

469

71

50

110

Actual Change in Non-Farm Payrolls

1,726

1,583

716

680

264

-227

49

Actual Change in Private Payrolls

1,523

1,066

932

954

359

-204

6

Consensus Forecast

Other Employment Report Data

Unemployment Rate (%)

10.2

8.4

7.8

6.9

6.7

6.7

6.3

6.3

6.4

Change in Household Employment

1,677

3,499

267

2,126

140

21

201

All Employees Hours Worked

34.6

34.7

34.8

34.8

34.8

34.7

35.0

34.7

34.9

All Employees Ave. Hourly Earnings (%m/m)

0.1

0.3

0.1

0.1

0.3

1.0

0.2

-0.2

0.2

All Employees Ave. Hourly Earnings (%y/y)

4.7

4.7

4.8

4.5

4.5

5.4

5.4

4.9

5.3

Sources: Refinitiv, Markit, Capital Economics

1Figures in blue are forecasts

Chart 3: Actual & Estimated Change in Non-Farm Payrolls (000s)

Sources: Refinitiv, Capital Economics


Andrew Hunter, Senior US Economist, andrew.hunter@capitaleconomics.com