Jobs and More Jobs

Episode Summary

Executive Summary: The episode centered on a stronger-than-expected May jobs report and what it says about the post-pandemic labor-market recovery. The hosts highlighted solid job growth, falling long-term unemployment, continued wage resilience, and persistent labor-market frictions from childcare, health, UI, and matching problems. They argued full employment likely arrives by late 2022/early 2023, but policy debates over labor supply, inflation, and participation remain critical.

Main Topics: May jobs report and labor-market recovery (Priority: 5/5): The hosts dissected the latest employment report, emphasizing that job growth remained robust even if slightly below consensus, and that the labor market is still healing from a historically deep pandemic shock. Prime-age employment as a full-employment gauge (Priority: 5/5): They discussed the prime-age employment-to-population ratio (EPOP) as the best indicator of labor-market slack, noting it remains below the pre-pandemic/full-employment threshold but is moving in the right direction. Why job openings and unemployment coexist (Priority: 5/5): The conversation explored the apparent contradiction between record job openings and elevated unemployment, focusing on pandemic-related frictions, childcare, health concerns, job matching, and labor-force re-entry. Role of UI benefits and labor-supply incentives (Priority: 4/5): The panel debated whether enhanced unemployment insurance is discouraging work or merely buying time for better job matches, with most speakers placing UI below pandemic frictions as a cause. Wages, productivity, and inflation risk (Priority: 4/5): They examined why wage growth remains strong despite the crisis, linking it to surviving firms, sectoral composition, tips returning in hospitality, and potential productivity gains; they also warned of inflation if wages outpace productivity. Inflation, yields, commodities, and policy signals (Priority: 3/5): Ryan's monitored indicators—10-year Treasury yields, claims, copper, oil, and inflation expectations—were used to interpret market and Fed reactions, including taper timing and transitory inflation debates. Longer-run labor supply challenges (Priority: 4/5): The episode ended with concerns about future labor shortages, the need for more immigration, and policies such as affordable childcare to raise participation, especially among women.

Key Arguments: Prime-age EPOP is the best single gauge of labor-market slack because it captures participation and employment among 25-54 year-olds, and it still has room to recover before full employment. The labor market’s odd combination of record openings and high unemployment is best explained by pandemic scarring: childcare issues, health fears, caregiving burdens, and re-matching between workers and firms. Enhanced UI likely matters, but it is not the main driver; most hosts thought it was secondary to structural and pandemic-related frictions. Strong wage growth is partly explained by composition: firms that survived the pandemic were generally healthier and higher-paying, while frontline sectors held wages up and some hospitality wage gains may reflect returning tips. If productivity growth is genuinely improving, wage gains may be sustainable without inflation; if not, rising wages could translate into higher unit labor costs and broader inflation. Business formation may be unusually strong, meaning official payroll employment could be understating job creation until benchmark revisions catch up. Female labor-force participation and childcare affordability are key longer-run issues, because the pandemic may have altered participation decisions permanently for some households.

Data Points: Prime-age employment-to-population ratio (EPOP): 77.1% - Ryan identified this as the key labor-market slack indicator in the jobs report. Pre-pandemic prime-age EPOP: just above 80% - Referenced as the full-employment threshold before the pandemic. Prime-age EPOP trough: 70% - The low point in April 2020. May payroll gain: 559,000 - The headline jobs report beat the prior month but came in below consensus. Consensus jobs forecast: 673,000 - Market expectation for the May employment report. Ryan’s forecast: 600,000 - Ryan’s estimate was close to the actual payroll gain. Long-term unemployed: 3.8 million - Dante highlighted the large decline in long-term unemployment in the May report. Long-term unemployed pre-pandemic: about 1.25 million - Used to show the remaining gap from normal conditions. Weeks of unemployment for long-term unemployed: more than 26 weeks - Definition used in the discussion. Productivity growth: 5.4% annualized, quarter-over-quarter - Chris cited strong Q1 productivity growth as an important positive signal. CoreLogic house price growth: 13% year-over-year - Used to illustrate ongoing housing inflation and regional overheating. Highest house-price-growth states: Idaho about 20%; Arizona and South Dakota also around 20% - Mentioned as examples of very rapid local home-price appreciation. Inflation expectations measure: 2.25% - Discussed as near the high end of what the Fed would likely tolerate. 10-year Treasury yield: about 1.55% - Ryan said the bond market interpreted the jobs data as somewhat dovish. Weekly UI claims: 385,000 - Chris’s weekly labor-market indicator, improving from the prior week. Prior week claims: 405,000 - Used to show claims were moving lower. Oil price: $70 per barrel - Discussed as elevated but not alarming given global supply-demand dynamics. Retail gasoline sensitivity rule of thumb: $1.1 billion annual consumer spending impact per 1 cent change - A pre-pandemic estimate of consumer sensitivity to gas prices. Open job positions (JOLTS): 8 million - Cited as a record high, underscoring the labor mismatch. Unemployment rate: 5.8% - Used in the discussion of the gap between openings and labor supply. U6 underemployment rate: over 10% - Referenced as a broader measure of labor underutilization. Average monthly job growth in 2021 through May: 478,000 - Dante noted this pace would have looked extraordinary historically. Average monthly job growth recently: about 500,000 - Used to project the timeline back to full employment. Historical five-month average job-growth comparisons: 1941, 1946, 1984 - Dante said only those periods matched or exceeded the recent pace since World War II. Highest average job growth after the Great Recession: 262,000 - Used to contrast the current recovery with prior cycles. Youth unemployment rate (ages 16-19): 9.6% - Described as the lowest since 1953. Share of new firms with plans to hire: about 35% - Census EIN data discussed as evidence of broad-based business formation. Average hourly earnings in leisure and hospitality: 17% annualized over three months - Used to illustrate the wage surge in reopening sectors. Residential labor-force participation (women) pre-pandemic: about 77% - Mentioned as a key longer-run participation benchmark.

Pivotal Quotes: "77.1%. Your clue is it's in the employment report, and it's a very important indicator of gauging where we are." — Ryan Sweet / Mark Sandy: Introduced the prime-age EPOP as the episode’s key labor-market statistic. "We have an unprecedented number of job openings." — Dante D'Antonio: Core explanation for why unemployment and vacancies can remain high simultaneously. "We need more immigrants. And when I say that, I mean obviously skilled workers, but also I think we're going to need a lot of unskilled workers as well." — Mark Sandy: Closing point on long-run labor supply and policy needs.

Implications: The labor market is healing fast but not yet normal. Expect strong job gains, continued wage pressure, and policy debates over UI, childcare, immigration, and Fed tapering. The biggest risk is misreading temporary frictions as permanent labor shortages or ignoring inflation if productivity does not keep pace.