With 199,000 new jobs added to the economy in December - less than half of what economists had predicted - the labor market has still come back quickly and to a great degree overall in 2021. It has come back quicker than had been forecast around the start of the pandemic a couple of years ago. Dropping a significant three tenths percent to 3.9%, the unemployment rate is as close to the lowest it’s been before the pandemic.
Diffusion Index Tells Us How Concentrated Is the Job Growth
The Diffusion Index tells us the breadth of the job numbers: how diffusely the jobs are spread across industries. The closer the Diffusion Index is to 100, the more widespread the jobs are across industries. If the number is more than 50, more industries gained jobs than lost them. Today’s Diffusion Index is 59.5, which is the lowest it’s been since January 2021.
This employment growth is concentrated in only a few industries. Professional and Business Services added 43,000 jobs last month, and Leisure and Hospitality gained 53,000 jobs. These two sectors gained almost 50% of the job growth last month, making the Diffusion Index relatively low.
Disconnect Between Strength of Economy and How People Feel About the Economy
The labor market is still in the hole. Compared to February 2020, our economy is still short 3 million jobs. Taking into account the Congressional Budget Office forecast of what would have happened if there had not been a pandemic, our economy is short 5 million jobs of where we should be.
Compared to our last recession, the Great Recession, the economy has come back quickly, but our market is not fully healed. We still have a long way to go. The quits rate is at a record high, suggesting that people are leaving their jobs for what they feel are really good prospects elsewhere. Wage gains have gone to hourly jobs, which tend to be lower-wage workers. Despite these positive trends, there is still a disconnect between the strength of the economy and the way people feel about it.
There are a lot of job openings, but the challenge remains for employers luring prospects to those openings. The intangible pandemic-fatigue is still keeping a lot of workers at home. Not everyone is ready to return to the workforce given the exhaustion across the country as we approach year three of the pandemic.
Two Surveys Comprising the Jobs Report
The slow pace at which employers are adding jobs may be an indicator of how difficult it is to find employees- rather than an indicator of a weakness in the economy. There are two surveys that comprise the jobs report.
The survey that gets the most attention is the Establishment Survey in which businesses are asked how many employees do they have on payroll. This is how we get the count of the total number of jobs in the economy. The Household Survey tells us how many people don’t have jobs. Survey-takers ask people if they are working or if they are looking for work. That is how we get the unemployment rate.
The two surveys don’t always tell the same story. While the Establishment Survey tells us how many people get a paycheck, the Household Survey includes people who work in agriculture, people who work in an unincorporated self-employment situation, and people who work in households such as nannies and housekeepers. These types of employment plus side gigs are a positive for the economy and may explain the challenge employers face in finding new employees.
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