2021 Job Growth Off to a Slow Start
Employment growth continued to underwhelm in January with only 49,000 jobs gained, a sluggish start to what should end up being a strong year of hiring.
As expected, January’s job growth reported by the Bureau of Labor Statistics was more muted compared to the stronger recovery in the summer and early fall of 2020. The rise in COVID-19 cases and tightening restrictions during last year’s holiday season lingered into 2021, and certain at-risk industries continued to face the brunt of the challenges caused by the pandemic.
The Leisure and Hospitality industry, which includes restaurants, hotels and entertainment, continued to shed jobs in January. While overall employment gain was 49,000 for all industries, Leisure and Hospitality lost 61,000 jobs and the rest of the job market gained 110,000. The impact of the pandemic also remains uneven by type of jobs. While virus counts are decelerating in many areas and vaccine rollouts are projected to increase in pace, more infectious strains of COVID-19 add a degree of uncertainty to how quickly we can reach a turning point.
For now, the expectation of a significant rebound in the second half of 2021 is still the base scenario. The strength of the rebound will depend on how quickly we can return closer to normal behaviors and whether businesses are able to ramp up hiring as revenue growth accelerates.
The unemployment rate declined to 6.3% in January, but the rate varies dramatically depending on occupation. Computer and Mathematical (2.4%), Community and Social Service (2.9%), Legal (3.0%), and Healthcare Practitioners and Technical occupations (2.0%) remain in extreme demand. The role of talent acquisition professionals remains vital and challenging as the supply of talent in those fields is very tight, and candidates are more hesitant to switch jobs during uncertain times.
At the other end of the spectrum, service roles such as Food Preparation and Serving Related (16.5%) and Personal Care and Service (14.2%) continue to have elevated unemployment rates due to social distancing restrictions. Building and Grounds Cleaning and Maintenance occupations (10.4%) are, in part, impacted by fewer people traveling or going into the office.
The Outlook | Why It Matters
LaborIQ by ThinkWhy projects a significant acceleration of job growth in the second half of 2021. The first half of the year will be marked by the rollout of the vaccine, and if projections hold, dwindling virus counts will give way to economic expansion in the second half of the year.
This week, the Congressional Budget Office announced it expects gross domestic product (GDP) to return to pre-pandemic levels by mid-2021. Increased business revenues, bundled with the potential of eased social restrictions, have the potential to lead to the largest hiring wave the U.S. has ever seen.
The following metro areas are poised to be among the first to recover all lost jobs. While the overall employment totals for these markets will still take until 2022 to reach their pre-pandemic levels, some of the top-performing industries will have recovered all jobs by the end of 2021 in these cities.
- Atlanta-Sandy Springs-Roswell, GA
- Austin-Round Rock, TX
- Birmingham-Hoover, AL
- Dallas-Fort Worth-Arlington, TX
- Indianapolis-Carmel-Anderson, IN
- Oklahoma City, OK
- Phoenix-Mesa-Scottsdale, AZ
- Salt Lake City, UT
Industry notes and the year the industry is expected to return to pre-pandemic employment levels:
- Construction – December construction spending was estimated at $1.5 billion, seasonally adjusted, continuing its fourth-quarter climb. Construction spending increased 1.0% from November, according to data released Feb. 1 by the Census Bureau. The continued growth in spending is sustained by private development, which expanded 1.2% from November versus .5% for public projects. Residential construction is the driving force within private development, increasing 3.1% in the last month of 2020, while non-residential projects declined 1.7%. Limited home supply and low mortgage rates make residential investment appealing as the pandemic pushes people to reconsider living arrangements that now need to accommodate work. Higher earners whose wages have stayed the same or been boosted by government stimulus and low unemployment rates relative to other workers benefit especially from the favorable market conditions.
- Financial Activities – Forces driving this industry can be linked to the increased demand for housing. Real estate credit firms, which include mortgage companies and home equity lending, grew 16.3% on an annual basis in December. Further, employment in financial investment activities and other investment instruments have performed well, due in part to increased trading activity. Overall, this industry continues to show resilience to the economic downturn, posting a near complete recovery overall with some sectors at higher employment levels than before the pandemic. Not all industries in this sector have been unscathed, though. Rental & Leasing businesses, for example, have seen demand plummet as business travelers and families do not need to rent vehicles for trips and office equipment went unused as remote work and shutdowns slowed demand.
- Healthcare – In the fourth quarter of 2020, the increase in personal consumption expenditures was mostly accounted for by a boost in healthcare service spending, according to data from the Commerce Department. Vaccination distribution certainly required health care providers to bring on additional support, and continued lab testing and vaccine production likely impacted the trend as well. Virus cases remain elevated and will likely continue to test the industry, but there has recently been some positive news regarding the number of decelerating hospitalization counts.
- Professional and Business Services – This industry is back above pre-pandemic employment levels in 12 states. Businesses in this industry often include high skilled occupations that have maintained relatively low unemployment rates. Professional and Business Services is expected to be the strongest-performing sector by the end of 2022, based on forecasts by LaborIQ.
- Manufacturing – The ISM manufacturing index, a key economic indicator that measures order activity at U.S. factories, slipped in January to 58.7% from 60.5% in December, but this still signals that activity remained high – just slower than the month before. Readings above 50 percent imply the manufacturing sector is expanding; readings below 50 indicate the sector is contracting. The ISM report indicated 16 of 18 manufacturing industries grew in January. The report also indicated that companies were generally in need of filling positions rather than facing workforce reductions. The manufacturing industry remains -5.3% down from pre-pandemic employment levels, a total of 582,000 jobs.
- Trade, Transportation and Utilities – Warehousing & Storage along with Couriers & Messengers continue to see strong activity, up 136,500 jobs from pre-pandemic levels, or 15.5%. On the other hand, airline transportation remains muted and retail sales dropped in December. Employment in the Air Transportation industry has dropped by 20.3% since February 2020, a loss of 104,700 jobs.
- Government – Expenditures on services provided by state and local governments dropped by a seasonally adjusted annual rate of 2.8% in the last three months of 2020. Over the entire year, expenditures fell 1.8% in 2020 from 2019. This means there were not only fewer services in the sector, but fewer jobs. Although GDP is expected to be at pre-pandemic levels by mid-year, state and local government budget deficits will likely continue in coming years, given reduced income streams from depressed business revenue. As a result, governments may have to respond with thinner payrolls and services.
- Mining and Logging – Industry experts have predicted that pre-pandemic oil demand will return by mid-year, pushing the price per barrel upward in favor of oil companies who have recently reported record revenue losses and job cuts. Oil prices have rebounded since plummeting at the beginning of the pandemic. Improving public health and economic conditions are expected to increase demand. Baker Hughes, which provides weekly survey counts of rigs actively exploring or drilling for oil or natural gas, reported that the number of rigs drilling for oil in the U.S. increased by six during the last week of January, but was still off more than 400 from the same week last year. The debate on climate policy will heat up in Washington with new policy being drafted. Exxon recently disclosed its intention to form a team focused exclusively on carbon-reducing technologies, according to the Wall Street Journal.
- Leisure and Hospitality – Travel, tourism and gatherings such as conferences, family reunions and the spontaneous weekend trip will not begin ramping up significantly until the vaccine has been distributed enough to provide needed protection to the larger population. Restaurants, a major employment base in this industry, will also be constrained based on customer demand and restrictions. The money is there. The personal savings rate was at 13.7% in December, according to the Commerce Department. Recent stimulus checks incentivize some to dine out, helping sluggish restaurant businesses. But, for the most part, the extra spending that occurs remains much below its potential, with customers still unable or unwilling to travel or visit restaurants. Daily traveler throughput at the nation’s airports was down 64% on average in January. Hotel occupancy hovered at 40% for the week ending Jan. 23, according to Hotel News Resource. A rebound is expected in the second half of 2021, but these numbers continue to tell the story of an industry crippled by the coronavirus recession. The overall Leisure and Hospitality industry remains down almost 3.9 million jobs since the pandemic began nearly a year ago.
LaborIQ by ThinkWhy reports, forecasts and advises on employment conditions and the impact to jobs, industries and businesses across all U.S. cities.