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Economic Update | Another Positive Employment Report

By Dr. Uric Dufrene, Sanders Chair in Business and Professor of Finance, Indiana University Southeast

The Bureau of Labor Statistics issued the monthly employment report this week, and there were a few highlights worthy of discussion.

First, the headline payrolls number came in much higher than expected.   Consensus estimates had payroll gains at 400,000 plus, and the actual number came in much higher at 678,000. Leisure and hospitality led the way with 179,000 jobs.  Of that number food and drinking places added 124,000.   Employment in leisure and hospitality is still down 1.5 million since February 2020.    We will likely see continued growth in the leisure and hospitality number this year, but headwinds are developing, and these will be discussed in the conclusion.

Professional and business services were next with 95,000 jobs.  This included 36,000 temporary labor services positions.  A strong number in professional and business services is normally a positive signal about the overall business environment and growth in general.

Employment in healthcare increased by 64,000 and remains 306,000 lower than February 2020 employment.   Registered nurses continue to be in significant demand and the occupation with the highest number of openings in Louisville Metro, and nation-wide.   In the past 90 days, there were over 500,000 job postings for registered nurses positions across the country, about 200,000 higher than software developers, the second-highest number of postings.  As a comparison, we know that truck drivers continue to be in significant demand as well, but total postings nationwide were only 242,000.

Other notable gains include transportation and warehousing and retail.  Transportation and warehousing added 48,000 jobs and is 584,000 higher than February 2020.  For Southern Indiana, we see a similar occurrence.  Transportation and warehousing observed the greatest change in jobs across the five counties and is almost 3,000 jobs higher than existed in late 2019.    Retail added another 37,000 jobs is also at a level that exceeds retail jobs in early 2020.   The same applies for Southern Indiana.  Retail jobs based on the latest available data exceed levels of late 2019, and early 2020.

Another industry with importance to Southern Indiana is manufacturing.  The national jobs report showed that manufacturing added 36,000 jobs and remains lower by 178,000 compared to February 2020.    For Southern Indiana, manufacturing is showing the greatest decline among all industries when compared to early 2020.  Even though payrolls are lower, total wages are up.   One inference we might draw from this is that productivity in manufacturing is higher.  Manufacturers, due to labor scarcity, are finding ways to meet demand, and the growth does not necessarily equate to stronger payroll gains.

An important highlight in last Friday’s report was gains to the labor force.  An ongoing challenge for employers has been the availability of labor.    Record job openings and quits point to the challenges that employers face in adding payrolls.  Last Friday’s report showed that the nation’s labor force increased by 304,000, and the labor participation rate ticked upward to 62.3%.    While these numbers don’t get as much attention as the headline unemployment rate or the total payrolls added number, both were quite significant.   As this labor force number continues to increase, along with labor force participation, this will support overall payroll growth.

The other number that was quite significant was average hourly earnings.   It only increased by one cent, over the month.  While there is another geo-political issue that will present additional inflationary pressures,  last month’s average hourly wage muted increase provided some relief against a wage price spiral.

And now the bad news.   Consumer sentiment has been on the decline for the past several months and is now at the lowest level since 2011.   Inflation is the primary culprit for that. Jobs are quite plentiful, and the consumer is in much better shape now than prior to the pandemic.  But the consumer also likes shelves that are stocked and prices that are contained.     However, even with sinking consumer sentiment, consumers continue to spend.  Retail sales remain strong, and the last consumer spending report indicated another solid gain.   We will begin to see greater pressures on some of this spending, however.  As gas prices exceed $4.00 a gallon, consumer sentiment will sour even more.  Stock market volatility and loss in equity values will provide additional support for declining sentiment.     Growth was expected to slow because it was impossible to maintain the level of growth that occurred when the economy was coming out of the pandemic.   Recent developments, however, point to slower growth on top of what was already expected.

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