U.S. Labor Market On Track for Recovery with Almost 1M Jobs Added; Hiring Challenges Persist
July’s job gain of 943,000 follows another month of impressive job recovery across the U.S., shining a brighter light on economic recovery despite the challenges that persist for organizations in hiring and retaining talent.
The U.S. labor market is undergoing a major transition with several factors at play.
Job openings remain at record highs, with more than 9.2 million open positions in the U.S. - across all major sectors.
Businesses are eager to capture market demand and are often expanding headcount budgets to meet compensation demands and fill open roles, yet still cannot hire employees quickly enough. If filling new roles was not a large enough challenge on its own, the number of employees quitting their jobs has also been at record levels recently.
Even though companies are clinging to talent given the currently supply challenges, initial unemployment claims recently experienced its largest weekly uptick since late-March. The increase in initial claims was temporary but with so many people moving from one job to the next, there will be some turbulence along the way.
Other dynamics at play include candidates’ willingness to pursue or accept work that is in-office versus remote, as well as rising counts of the COVID-19 Delta variant. Despite various challenges, the labor market continues to make traction toward regaining all jobs lost since the start of the pandemic and remains on track for a full recovery by early 2023.
The Talent Demand
July’s job numbers were boosted by the recent expiration of additional unemployment benefits in half of U.S. states. Even prior to the discontinuance of extra unemployment benefits, the Phoenix metro area had a rush of employment gains with almost 42,000 jobs added in June. Arizona also offered a back-to-work bonus of up to $2,000 for workers transitioning from unemployment benefits to a full-time job.
Additional unemployment benefits are not the only factor keeping workers on the sideline, but it is expected that the end of benefits will motivate people to rejoin the workforce, especially in the leisure and hospitality sector which added 380,000 jobs in July. Analysis by LaborIQ shows that approximately 90% of jobs that remain lost are hourly or part-time positions, many of which are in the restaurant, hotel and entertainment industry.
With consumers hitting the road for overdue vacations, moving candidates through the recruiting and hiring process proves to remain challenging and long. As we move into the fall season, the U.S. can expect a very busy hiring season as personal travel normalizes and businesses focus on a strong finish to 2021.
Jobs Recovery Outlook
The rise of the COVID-19 Delta variant is a wild card that will impact the forecast period, but the U.S. is expected to handle any future virus surges more effectively than in 2020. The recovery will continue, but the speed could be slowed.
The pace of monthly job gains has been anything but consistent through the first seven months of this year, but the good news is people are getting back to work and a full recovery is still within reach by or before the end of 2023. In fact, a pace of roughly 335,000 jobs added per month would mean all jobs lost are recouped by the end of 2022.
LaborIQ® Index: July 2021 Market Rankings
The U.S. labor market has made substantial ground recouping 16.7 million of the 22.4 million jobs lost during the initial stages of the pandemic, but the recovery has varied significantly based on location and economic performance. Hiring managers and talent acquisition professionals have faced various levels of challenges and successes depending on the available talent in their local market. Some of the strongest labor markets have experienced robust net migration, with people moving more frequently for employment opportunities, which has fueled talent supply.
Indicators of a Recovering Labor Market
The proprietary LaborIQ® Index identifies and tracks 10 key performance indicators that best measure and rank a local economy’s performance. These indicators or variables are present in every market and represent the greatest drivers of a market’s economic progress or decline, and now, the drivers that impact each metro’s progression toward pre-pandemic employment levels.
The ranking index provides a strong evaluation of which U.S. cities are attracting talent, recouping jobs and those primed for recruiting and hiring.
What do these metros have in common? Eight of the 10 markets rank in the top 25 for net migration, representing people moving to these areas, as opposed to natural population growth. Often, people are relocating for job opportunities, but family and retirement also factor into the equation. Dallas, Phoenix, and Austin currently rank in the top three for net migration, in addition to topping the overall ranking.
Half of the top-ranked metros are in Utah, Texas and Idaho, which also top the list for population growth over the last decade. As job openings increase, the influx of human capital in these areas has rebounded significantly, putting each metro in stronger position than most to fill open jobs.
The Standout Performer: Denver, CO
The Denver area has been the biggest mover over the past year, according to the LaborIQ Index. The metro ranks highly in a variety of categories, with expectations that it will top the best-performing metros list for an extended period.
Out of 150 metros, the Denver metro area ranks in the top 25 for:
- Working-age population size and growth,
- Net migration,
- Annual job gain,
- Level of wages,
- Percentage of workforce with an associate degree or higher, and
- Total number of college graduates.
Look for Denver to be a talent magnet, pulling candidates from other metros as it maintains its status as one of the nation’s top landing spots for new hires.
Progression of the Top 5 Ranked Metros
In addition to Denver’s standout performance, four other metros take top position in the LaborIQ Index due to strong their strong progression toward recovery.
Despite the pandemic, people and businesses were already on the move into the Dallas-Fort Worth and Austin areas, with Texas holding its name as the number one state for business in America, cited by the International Economic Development Council.
Executives listed the overall business climate, favorable tax situation, overall pro-business regulatory environment, and access to talent as key drivers for business success in the Lone Star state. With additional availability of talent, these metros have recovered jobs more quickly, ranking them as top performers.
Similar economic drivers have placed Phoenix and Raleigh at the top of the best-performing metros list, with net migration and job growth accelerating recovery in these markets.
Industry Performance & Recovery Outlook
The service-based economy is bouncing back. Consumer demand and business investments have increased, along with a surge in summer travel.
July’s jobs report indicates the service-based economy is bouncing back. Consumer demand and business investment have swelled — signs of improved job prospects and employment - along with a surge in summer travel. This is good news for the Leisure and Hospitality sector.
Manufacturing, along with Trade, Transportation and Utilities sectors, continue to suffer from material and labor shortages, now paired with rising commodity and fuel prices.
Talent acquisition professionals in these industries will face different challenges sourcing in-demand occupations and from broader industry impact.
LaborIQ expects to see pre-pandemic employment levels return unevenly across the major sectors.
Financial Activities: With additional loan applications and federal monetary policies, financial organizations were not as severely impacted by the pandemic, as consumers were incentivized with low interest rates to apply for mortgage loans and increase investments.
As business and travel activity has increased across the nation so has consumer demand on real estate, rental and leasing companies within the sector.
Construction: Expectations for the construction sector have shifted, with a recovery pushing into 2022. Spending has slowed as developers reach their capacity to finish and start new projects.
Residential developers will have a decreased need for workers, as consumers focus spending on recreation and other pleasure activities.
Nonresidential projects will be impacted if the COVID-19 Delta variant continues to spread and businesses slow the return to office, as well as other implications the virus may cause.
Healthcare: Despite higher costs, consumers spent more on healthcare services in the second quarter of 2021, as compared to the first three months of the year. The demand for healthcare workers will remain strong. Technology has only improved the feasibility of virtual, telehealth and home healthcare options continuing the need for healthcare providers.
As healthcare continues to adopt advanced technologies, investment and job opportunities will follow - leading to a full recovery next year.
Professional and Business Services: This industry’s unemployment rate remains below the U.S. average, signaling a tighter job market. Even during the worst parts of the recession, fewer workers were laid off in this industry. Now, given a brighter economic outlook, many workers may change jobs to for higher compensation, a promotion or simply to find flexible remote-work opportunities.
Trade, Transportation and Utilities: Driven by health consumer demand and business investment, the recovery timeline for this sector has improved from last quarter’s forecast. However, fuel availability and labor shortages have become a bottleneck for the industry. Some of these challenges are transient but can hurt profitability as businesses try to recover.
Conversely, passenger movement has jumped significantly, and summer has boosted overall demand within the sector, giving rise to business growth.
Manufacturing: Orders for durable goods has increased 13 of the last 14 months but growth has recently slowed. In July, the ISM® Report on Business® PMI® slipped to 59.5%, from 60.6% the month prior. (PMI above 50% indicates industry expansion.) This industry’s ability to work through labor shortages to meet demand will impact its recovery timeline.
Information: In a world of digital consumption, investment in technologies remain constant. From home offices to new company headquarters, purchases of computers, software and other supporting information systems will continue to thrive. Recovery in the information sector will mostly depend upon viewer behavior and consumption of in-home entertainment, as well as the resumption of in-person entertainment, like motion pictures and sound recording.
Leisure and Hospitality: Consumers increased spending on recreation by 43% and food services 68% as compared to the first quarter of the year. Demand for services has increased in the sector, but the inability to lure workers back, combined with higher materials cost are hurting business operations and profitability. However, the industry is expected to continue to add a high number of jobs, after losing 25 million during the pandemic, but the road to recovery will be a long one.
Government: State and Local expenditures increased 3.5% from the first quarter of 2021. Funding services that support employment and are important to an area’s vivacity. At the federal level, infrastructure investment and higher spending could improve the intermediate outlook, but long-term consequences are hard to distill. It will be important to see how local governments reinstate or follow federal mandates, in response to the Delta variant and cases surging
Mining and Logging: Operable capacity for refineries surpassed pre-pandemic levels for the first time in June and July. Oil prices have reached highs last seen in 2018, as the appetite for road trips and air travel resume and demand for freight services remain high. LaborIQ expects employment in this sector to improve, as economic activity causes producers worldwide to increase production.
LaborIQ by ThinkWhy continuously forecasts and reports labor data at all levels, measuring impact to cities, industries, occupations and businesses across the U.S.