Chief Economist Eugenio J. Alemán discusses current economic conditions.
It is clear that economic indicators have been all over the place since the end of the pandemic recession in 2020 and that there is a lot of noise in these indices. Last Friday’s nonfarm payrolls survey versus the household survey was one of these contradictory indicators with nonfarm payrolls showing 339,000 new jobs added while the household survey showed a decline of 310,000 jobs during the month of May. Economists trust the nonfarm payroll number more than the household number in general because it is the one that follows recession more closely. Furthermore, the Bureau of Labor Statistics has an adjusted household survey series that more closely matches the payroll number over time. Thus, we also tend to trust the nonfarm payroll number more than the household survey even though alarm bells start to sound loudly when we see such large mismatches between the surveys.
Having said this, the payroll number gets revised over time so in some instances, the household survey may be a better indicator of the state of the U.S. labor market. The problem is that we don’t know, ex-ante, whether the payroll survey is in line for a large revision, which means that the household survey may be the better measure. Furthermore, last week’s increase in the jobs opening number seems to back up the nonfarm payroll number while this week’s sharp increase in the initial jobless claims seems to give more credence to the household survey. If you are confused at this point, you should be, because all the numbers point in different directions, and economists at the Federal Reserve (Fed) have the same issues interpreting these different signals as economists outside the Fed.
If we take a look at what has happened to employment since before the COVID-19 pandemic recession (see graph below), there are, fundamentally, seven broad sectors of employment that have been leading the way in terms of employment growth, according to the nonfarm payroll employment survey. However, the strongest of these sectors have been trade, transportation & utilities, professional & business services, and education & health services, with the other four growing but not as strong as these three.
On the other hand, the laggard sectors since the pre-pandemic recession have been the leisure & hospitality sector, which was the most affected sector during the pandemic recession, as shown in the graph above, and, to a lesser extent, mining & logging, other services, and finally, the government sector. Thus, it is fair to say that, from this perspective, the leisure & hospitality sector may well remain front and center in job creation during the second half of the year. As of May of this year, that is, year-to-date, this sector is still below its pre-COVID-19 recession level by about 200,000 jobs. Other employment sectors that are still below the levels of employment that existed pre-COVID pandemic recession are the mining & logging, other services, and the government sector.