U.S. Job Gains Disappoint as Employers Continue to Face Hiring Challenges
U.S. job gains increased modestly in September with a mere 194,000 jobs added, which is well-below expectations and worse than August’s disappointing results. Continued growth at this slower-than-projected pace could jeopardize a 2022 recovery, pushing the timeline to 2023 for reaching pre-pandemic employment levels.
Despite the recent moderation in job gains, businesses are looking to hire, and consumer spending remains strong, which should keep the demand for talent high. The COVID-19 Delta variant contributed to slower job gains in August and September, and the recent decline in cases could be promising for the labor market if the trend remains favorable.
Since the major surge in hiring began in June, the U.S. economy added 2.6 million jobs in the past four months. That’s equivalent to a good year of job gains pre-COVID-19, but employment remains below pre-pandemic levels. July and August jobs numbers were revised upward by a total of 169,000 jobs. There were 22.4 million jobs lost in the early months of the pandemic, with just under 5 million remaining unfilled.
August and September job gains at 366,000 and 194,000, respectively, represent slower — but steady — growth that could delay overall recovery expectations. Despite record job openings¹, hiring has slowed, as companies face increasing competition for talent, while worrying about workers quitting or leaving for other opportunities. The end of pandemic-related unemployment benefits may have provided a boost to labor supply and job gains in September, but many uncertainties remain as we head into the fall and winter months.
The wave of COVID-19 cases associated with the Delta variant appears to be subsiding and case counts are falling. But holiday gatherings and people driven inside by colder weather, along with the fear of breakthrough infections, could cause some hesitation as businesses plan for 2022. Increasing vaccination rates will provide a boost to economic activity in the long run, but job gains will likely remain more moderate through early 2022. Keep in mind, the expectations of “moderate” gains today are still substantial when compared to long-term historic averages.
Talent Supply and Demand: Disruption Continues
Currently, there are around 3.1 million fewer people in the labor force, compared to February 2020. Federal supplemental pandemic unemployment benefits ended in early September, which may have pushed some workers to reenter the labor force. However, with the virus still spreading and fears of new variants, these benefits weren’t the only factor keeping workers on the sidelines.
COVID-19 has led to increased retirements among older workers, and women — especially from various racial and ethnic backgrounds — have exited the workforce to care for children as schools closed. Ongoing spread of the virus and uncertainty surrounding the severity of future waves and variants will continue to delay plans for many to reenter the labor force. Further complicating matters, women are more likely to work in caregiving or hospitality roles that have been disproportionately impacted by COVID-19.
One short-term challenge to watch this fall is the impact of vaccine requirements on employment in key industries. As private and federal vaccine requirements are implemented, Healthcare, Education and Leisure and Hospitality may experience additional disruptions to their labor supplies. While many unvaccinated workers facing vaccine mandates have chosen to be vaccinated, others have left their jobs or been fired. Additionally, some entertainment venues and businesses conferences are requiring attendees to be fully vaccinated — which can impact attendance and the number of workers needed.
In the long run, increasing vaccination rates will help these industries recover as employees and customers feel more comfortable. However, workers in these industries have faced burnout, and losing any talent in such a tight labor market will make hiring that much more difficult through the end of 2021.
Jobs Recovery Outlook
When compared to the surge in job creation during mid-2021, slower job growth is likely to persist through the fall and into early 2022. There have been record job openings this summer, but businesses are struggling to hire and retain talent. Several large metros — including Austin, Phoenix, and Salt Lake City — have already reached pre-pandemic employment levels and are entering job expansion mode. In contrast, metros in California, the Midwest and the Northeast are lagging.
Unlike years before the pandemic, holiday hiring is not likely to boost job growth to the same degree during October, November and December. Many retailers have been hiring all year to recoup job losses, and these companies are facing competition from warehouse and supply-chain jobs where wages may be higher and there is less face-to-face customer interaction. Challenges with the supply chain and rising prices of production inputs could also impact hiring going forward as companies may shift budgets away from talent acquisition.
The past couple months may represent a new phase of the recovery with slower job growth. Despite these challenges, recovery to pre-pandemic employment levels is still possible in 2023. And, at a pace of roughly 331,000 jobs added per month, all jobs lost would be recouped by the end of 2022.
LaborIQ® Market Index: September 2021 Rankings
National job gains have slowed substantially, following hiring surges earlier this summer. Despite these setbacks, the U.S. labor market has progressed to reach 96.75% of pre-pandemic employment. The recovery has varied significantly based on location; some metro areas in the Northeast, Midwest and California are still experiencing residual challenges, while others — including Austin, Phoenix and Salt Lake City — are seeing job expansion beyond pre-pandemic levels.
Currently, 10 of the 150 metros ranked in the LaborIQ® Market Index have already exceeded their pre-pandemic employment levels, and another 14 are within 1.0%. Progress to recovery is only one variable calculation in the LaborIQ Market Index. A strong local job market can fuel other important indicators, such as net migration and wage growth. Some of the very strongest labor markets have experienced robust net migration, with people moving for employment opportunities or as a new home base for remote work. These influxes of population drive local economic growth and fuel the supply and demand for talent.
Labor Market Indicators: Road to Recovery
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, represent the greatest drivers of a market’s economic progress or decline, and track each metro’s progression toward pre-pandemic employment levels and recovery.
The Index enables businesses and talent acquisition professionals to closely evaluate which U.S. metros are primed for recruiting and attracting talent.
Many of the metros ranked in the top 10 have been strong performers throughout 2021, but net migration or job gains are what has driven growth in Dallas, Phoenix and Austin, while Denver, Houston and Seattle have recently joined the ranks due to strong labor-market performance through summer 2021.
The Recovery is Bigger in Texas
Texas metros are clearly national leaders when it comes to economic recovery. In addition to Dallas, Austin and Houston top rankings, San Antonio comes in at number 24. Major metros in Texas are in the top-25 of the LaborIQ Index and are expected to remain top-performing metros for an extended period.
Texas’ four largest metro areas also rank among the largest in the country. Due to the sheer size of these labor markets, their recovery will significantly impact the national economy. In August, Austin became one of the three largest metros, along with Salt Lake City and Phoenix, to recover all jobs lost to the pandemic. Dallas and San Antonio are poised to join in 2022, with Houston expected to fully recover in 2023, the year projected for overall national recovery.
Texas has some of the highest population growth in the nation, and these four metros have some of the highest net migration in the country. So even as the labor supply continues to tighten, there should be a strong state-wide talent pool. However, given relative wages across the U.S., Texas may become a source of remote workers for companies in cities with higher wages. Talent acquisition professionals in Texas will need to work quickly and proactively assess total cost to correct in order to retain top talent, as compensation demands increase for high-skilled occupations.
Location Matters: Top 25 Metros
The LaborIQ Index illustrates key factors impacting labor market performance and job recovery, including the geographic differences in market strength. The top 25 metros are primarily in the Southeast, Texas, and Mountain West areas of the country. The Northeast, Midwest and California are on the perimeter for recovery and growth performance.
Metros ranked in the top 25 score highly across key categories in the LaborIQ Index, such as population growth, net migration, job gains and job growth. Strong net migration is the result of strong economic fundamentals and job growth, fueling labor supply and creating demand for products and services. Out of 150 metros in the LaborIQ Index rankings, the average population growth and net migration rankings for the top metros are 28 and 30, respectively.
These metros have led the recovery, recapturing many jobs lost to the pandemic. But even with rising populations, talent supply struggles to keep up with demand, which in turn, puts pressure on companies to increase wages.
Recruiters in these top metros will continue to be busy through 2022 and may have to look to other lower-ranked metros to fill open positions.
Industry Performance & Recovery Outlook
Author: Jonathan Blair
September industry performance is clouded by the COVID-19 resurgence caused by the Delta variant. The good news is that cases are now declining from a peak in mid-September, but uncertainty over future variants will persist through the winter. Consumer spending is expected to pick up heading into the holiday season, which could provide a boost to the economy.
While there was some upside for industries that continue to gain workers like Financial Activities and Professional and Business Services, Leisure and Hospitality has been slower to recover due to the depths of their initial job losses and disproportionate impacts of COVID-19 on the industry. Manufacturing production slowed, and Healthcare is facing yet another surge of hospitalizations and employee burnout caused by the highly contagious Delta variant. Talent acquisition professionals continue to deal with pressures to fill vacant roles and must continue to manage employee expectations about returning to the office.
Given market fundamentals, pre-existing industry trends and consumer demand, LaborIQ projects industry recoveries from 2021 to 2025 or later. See below for a timeline of LaborIQ industry recovery projections.
Financial Activities | The industry remains closest to pre-pandemic employment levels boosted by robust financial stimulus and consumer behavior over the course of the pandemic. Businesses in financial activities, who typically serve as financial intermediaries or sources of credit for consumers, fared well compared to other sectors. However, consumer sentiment is at its lowest point in a year and is testing the recovery of sub-sectors such as Rental & Leasing service companies that still have thousands of jobs to recoup.
Construction | Building permits slipped in September and recent construction spending measures have leveled off now that some prices have rebounded from peaks earlier this summer, but these recent trends may allow builders the opportunity to work through delayed projects and start scheduled projects that have piled up minimizing the likelihood of significant workforce reduction. However, the industry remains 201,000 jobs away from pre-pandemic employment and stalled growth along with the approaching winter season push out employment recovery into next year.
Healthcare | Technology will continue to shape the landscape of this industry. While In-person visits are required at some point for many patients, virus spread continues to put that at jeopardy in the short term. What appears to be a longer-term challenge is that healthcare professionals are in short supply. The COVID-19 pandemic continues to only aggravate this issue. Additionally, healthcare provider requirements for employee vaccination could sideline some workers despite most staff being vaccinated, especially front-line doctors and nurses.
Professional and Business Services | Despite the generally favorable business conditions and remote flexibility, companies are still finding it difficult to place workers in skilled roles. A new disruptor emerging is whether companies will elect to require the vaccine in combination with any return to office schedule. Challenges include workers’ desires to remain remote and reluctance to the vaccine. This could extend a heightened quits rate that makes recovering lost jobs second to retention and filing vacated positions.
Trade, Transportation, and Utilities | Labor and material constraints continue to limit business’ ability to meet demand. The Institute for Supply Management® Report on Business® shows that supplier deliveries slowed in September despite robust demand for goods and services. Although holiday hiring is not expected to be as high as recent years, labor demand will still increase as holiday season approaches, but companies will seek to fill more permanent openings to catch up on back-logged orders into next year.
Manufacturing | While not at full potential, this sector continues to progress. The ISM® Report on Business® PMI® indicated another month of growth in September. Readings above 50% indicate industry expansion. Factory orders have expanded four consecutive months according to the Commerce Department, which implies increased business for manufacturers. Even with supply chain challenges, the industry would return earlier absent worker availability.
Information | The breadth of this industry makes it difficult to generalize the challenges created by current economic conditions and other forces. COVID-19 has altered how and where individuals access data and information. Entertainment and work have shifted from theaters and offices to home consumption. These trends, along with pending legislation regarding internet accessibility and semiconductor shortages, will challenge data hosting services and telecommunication.
Leisure and Hospitality | The hardest hit industry of the pandemic, which includes hotels, restaurants and bars, ticked only slightly upward in September. Consumer sentiment dropped to its lowest level in September this year according to the Survey of Consumers conducted by the University of Michigan. The disruption to this sector is two-fold. Hesitant travelers and diners have kept demand lower. In the short term, vaccine requirements could present a challenge as certain potential workers could be disqualified or quit if unvaccinated.
Vaccination is also becoming a barrier for travel through company, airline, and event organizer requirements or lack-thereof. This reveals the next phase of trials for businesses to recover. In the longer term, vaccines are likely to provide a boon to Leisure and Hospitality as workers and customers’ fears of contracting COVID-19 subside.
Mining and Logging | U.S. rig count continues to rise although activity remain significantly under pre-pandemic levels. Crude oil inventories also dropped less than expected according to the EIA data released October 6th, suggesting slowing demand for petroleum products, revealing the impact caused by the delta variant of the COVID virus.
LaborIQ by ThinkWhy reports, forecasts and advises on employment conditions and the impact to jobs, industries and businesses across all U.S. cities.