Unemployment could fall this year to close to where it was before the Covid-19 pandemic, according to a Goldman Sachs forecast that predicts a hiring boom ahead.
The company projects an unemployment rate of 4.1% that may be even lower depending on how strong the recovery becomes amid more fiscal stimulus and a return to work for the sectors most affected by the coronavirus.
In addition, the forecast shows the economy returning to its pre-pandemic payroll level well before the end of 2022, a view that Treasury Secretary Janet Yellen supported on Monday in an interview with MSNBC.
“The main reason why we expect a hiring boom this year is that the reopening, fiscal stimulus and repressed economies are expected to fuel strong demand growth,” Goldman economist Joseph Briggs said in a note. Although the forecast is already the lowest on Wall Street, there is still “some possibility of a return to the pre-pandemic rate in the mid-3s this year”.
In February 2020, just before the pandemic hit, the unemployment rate was 3.5%, the lowest in more than 50 years. The rate skyrocketed to 14.8% in April 2020 amid company closings to reduce the spread of coronavirus, and has now dropped to 6.2% in February.
Still, total employment remains about 8.5 million below where it was a year ago.
The return to work for displaced hospitality workers, combined with another round of massive government spending, is expected to continue to bring that rate down.
“Another important reason why we expect a rapid recovery in the labor market is that two-thirds of the remaining pandemic job losses are in highly virus-sensitive sectors, where employment is expected to recover as the economy fully reopens,” Briggs wrote. “The sharp rise in the virus-depressed leisure and hospitality category in the February job report provided a clue to what is to come.”
In fact, the sector created 355,000 jobs in February, accounting for almost all of the 379,000 non-agricultural jobs added during the month, according to a Department of Labor report on Friday.
In addition, there seems to be plenty of time in the bar, in the restaurants and in the hotel space. The sector is still falling by almost 3.5 million workers compared to what it was a year ago, and the unemployment rate there is still 13.5%, compared to 5.7% a year ago.
In addition to a boost in hospitality hiring, Goldman says the growth in government payroll should also help reduce the unemployment rate. Public jobs fell 1.65 million compared to the previous year, and the group was the biggest obstacle in the February job report, as it lost 86,000 jobs.
Part of the call also includes the expected growth in the labor force participation rate, a fundamental dynamic to measure not only employment, but also engagement.
The rate dropped to 61.4% from 63.3% a year ago, when 4.2 million Americans left the workforce. The decline was especially sharp among women, falling to 57% from 59.2% last year, and for blacks, to 60.1% from 63.1%.
“Most workers who have left the workforce still cite the pandemic as a reason and are likely to return when life returns to normal,” Briggs said.
While Goldman has the strongest view of employment on Wall Street, several other analysts expect big gains over the year.
Citigroup economist Andrew Hollenhorst noted that the 379,000 payroll gain in February was actually slightly less than the 410,000 the company expected. Hollenhorst noted that “there are clear signs that restaurants have started to resume activity after slowing down in late 2020 and this was disclosed in today’s report.”
“The continued increase in seated meals activity suggests that this will continue to be a source of support for jobs in the coming months,” he added.
An employment index compiled by the Conference Board reached 101.01 in February, which represents a decrease of about 7.8% in relation to the previous year. Gad Levanon, head of the council’s Labor Markets Institute, said the current trend indicates an unemployment rate “well below 5%” in late 2021.