Weak April jobs report raises greater concerns
Wall Street is still shaking off the cobwebs from the Department of Labor’s April Employment Report. In April, the economy added just 266,000 new jobs, well below the 998,000 expected. The national unemployment rate also rose from 6% to 6.1%, its first increase since April 2020. Wall Street had forecast a decline to 5.8%.
Of the 11 sectors of the U.S. economy, just six posted job gains in April. The biggest gain was in the Leisure & Hospitality sector, which added 331,000 new jobs after gaining 206,000 in March. However, as many on Wall Street are quick to point out, if you remove the Leisure & Hospitality’s 331,000 gain, the other 10 sectors combine for a net loss of 65,000 jobs. The Leisure & Hospitality sector, which includes bars, restaurants, hotels, museums, theaters and sporting venues, among others, was the most heavily impacted by pandemic-related government restrictions. In March and April 2020, the Leisure & Hospitality sector lost more than 8.3 million jobs, or roughly 49% of its pre-pandemic workforce.
To simply chalk this up as a disappointing employment report belies a greater point. The country is supposed to be in the heart of a vaccine-fueled reopening that should drive a resurgence in the economy and labor market. Simply put, this wasn’t supposed to happen. So, what’s behind this sudden weakness in the U.S. labor market?
Because of the pandemic, one might logically assume a lack of jobs. But on Tuesday, the Department of Labor reported there are currently more than 8.1 million unfilled job openings, a new all-time record high. This is 1.1 million higher than in February 2020, before the pandemic.
Instead, employers are having a very difficult time getting employees back to work. Some people are still concerned over COVID-19. Others may have to stay home with a child as many schools are still not fully open. But economists and employers are provoking further scrutiny over the extra $300 per week federal supplement to unemployment benefits. When added to regular unemployment payments, many people are now making the same money, or even more, by simply staying at home rather than returning to work.
In March, President Biden extended the federal unemployment program for another six-month term, which expires in early September. But on Tuesday, Iowa Governor Kim Reynolds joined a growing list of states choosing to opt-out of the federal program, which includes the additional $300 per week payment. Iowa’s participation will end on June 12, though regular state benefits will continue.
Perhaps the greatest concern of this labor shortage is the impact on small businesses, which drive our nation’s employment and economic growth. Small businesses already face competitive disadvantages to the giant online retailers like Amazon and big-box retailers such as Walmart and Target. They often lack the efficiencies and economies of scale in their purchasing power, technology and logistics. Seldom can they go toe-to-toe in pricing.
But the labor shortage has forced many small businesses to raise their labor costs to attract workers. To offset these higher costs, many must raise their prices, placing them at an even greater disadvantage versus their larger retail counterparts. There’s also growing evidence that many small businesses are reducing their operating hours or eliminating customer services. These obstacles add further strain on small businesses that have yet to fully recover from the COVID-19 pandemic.
So far, Wall Street is still trying to gauge the fallout from the April Employment Report. But if the employment numbers continue to show weakness, it’s going to start calling into question the speed and strength of our economic recovery.
Mark M. Grywacheski, Investment Advisor
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Quad Cities Investment Group, LLC is a registered investment advisor with the U.S. Securities Exchange Commission.
