The Great Reopening

The U.S. economy is showing signs of returning to strength. The labor market added 916,000 jobs in March, with leisure and hospitality, education and construction leading the gains. Key labor market indicators improved as well, with the unemployment rate dropping to 6% and the labor force participation rate increasing to 61.5%. As more stimulus money continues to enter the economy and consumers continue to gain confidence, we should continue to see large job growth as the U.S. economic recovery accelerates.

A Turning Point

After months of waiting, employment growth in March showed strength in the U.S. labor market. The 916,000 jobs added is nearly twice as many as in February and is far above the consensus expectations for the month. This represents the strongest monthly job growth since August of last year, when the surge in COVID cases forced businesses throughout the country to shut down or dramatically curtail operations. The March job report reflects a turning point in the U.S. economy, as close to 100 million people have now been vaccinated, and consumer confidence jumped in recent days. 

March’s job growth should continue to accelerate, as the lifting of COVID restrictions allows businesses to expand operations and people start traveling again. The U.S. labor market grew 0.6% month to month in March–faster than any rate seen in the 20 years before the pandemic. Given the continued federal stimulus and general optimism, it is hard to see employment gains not continuing and speeding up as businesses gear up for what is sure to be a big summer.

Other key labor market indicators showed strength in March as well. The unemployment rate dropped from 6.2% to 6.0%, and labor force participation increased from 61.4% to 61.5%. These indicators reflect the strength in the job market, as more people come off the sidelines and return to employment.

Wage growth is also showing signs of returning to normal. This indicator has been problematic for the last year. Large jumps in yearly wage growth were a reflection of the loss of millions of low-wage jobs as the economy contracted. Now that these workers are returning to the labor force the wage growth figures are finally returning to realistic levels, dropping from 5.3% annual growth in February to 4.2% in March.

Growth by Industry

March saw strong growth across most major industries with only the information sector (-2,000) losing jobs in March.

Leisure and hospitality once again led all growth sectors last month, adding 280,000 jobs. Accommodation and food services (+215,900) led growth in the sector thanks to particularly strong growth among food services and drinking places (+175,800). The arts, entertainment, and recreation subsector (+64,400) was also positive month to month.

After months of sluggish job growth, the public sector broke out in March, adding 136,000. Most of the growth came in education sectors at the state and local government levels, with those sectors adding 125,600 jobs as teachers come back to school. Given that much of the losses in the public sector in the past year have come from education, the growth seen in March is a good sign for the recovery of the sector.

Construction gained jobs at a high rate in March, adding 110,000 jobs. This job growth came from workers returning after winter slowdowns, coupled with increased demand for residential construction.

Employment in professional and business services rose by 66,000. While the sector has been one of the better performing growth sectors, most of the growth has come from temporary help services, creating the illusion of long-term job growth. That was not the case last month. The number of jobs in temporary help services were largely unchanged, suggesting that the growth in the sector was organic and based in permanent job growth as compared to growth of temporary jobs.

The March jobs report marks a turning point in the U.S. economy. One year ago, more than 22 million people lost jobs as the pandemic spread and businesses shut down. After an initial jump in the early summer, employment languished for much of 2020 and into 2021. This report, coupled with other recent economic data, shows that the U.S. economy is entering a period of growth and strong recovery. However, employment still has a long way to go before it returns to pre-pandemic levels, with the labor market still about 8.4 million jobs below levels of early 2020.

As the economy enters a period of strong growth, there is some concern about inflation increasing at large levels. There are some signs of this already happening, especially in housing and energy markets. At the same time, manufacturers continue to struggle with supply chain slowdowns and commodities price increases. Increased consumer confidence may cause demand to exceed supplies, which will cause price increases and higher inflation. These inflationary pressures may present a difficult challenge for the Federal Reserve in coming months of whether to focus on employment growth or containing inflation.

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The division of Economics and Public Policy at Zions Bank informs and educates employees, clients, and the community-at-large by providing insight and analysis on issues related to local, national and global economic trends as well as federal banking policies. The primary goal of the Economic and Public Policy team is to help individuals and businesses understand important issues that can impact their daily financial decisions. For more information and analysis, please visit www.zionsbank.com/economy.

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