Pandemic’s Effect Erased in Job Market; Are We Back to Normal?

The percentage of respondents in the Conference Board’s May survey who said jobs are plentiful is 48.6%.

One corner of the American labor market is back to pre-pandemic levels. The Conference Board’s monthly survey asks whether jobs are plentiful or hard to get, and in May the jobs-are-plentiful response came in at 46.8% versus 36.3% the month before. The spurt higher erases the indicator’s plunge after the U.S. economy was shut down by the pandemic in mid-March 2020. 

The surge in the availability of jobs reflects an attempt by companies to re-hire the workers they had to let go last year. The return to pre-Covid levels for the jobs-are-plentiful indicator is a welcome sign that the labor market may be getting closer to the high employment levels that were seen when the pandemic struck.

However, returning to what was considered a normal labor market before the pandemic may be impossible. And the job market indicators investors and economists rely on may need to be updated to reflect an emerging, new reality.

Post-pandemic normal?
Many companies, for example, are sorting out how to mix in-person and remote work, and tackling the difficult question of whether they should make changes to worker responsibilities, compensation and benefits. That will take time and the outcome is far from clear.

Worker productivity is another open question. Remote work during the pandemic gave a lift to worker efficiency.¹ Rising productivity, all else being equal, should result in a higher standard of living.

However, it’s far from clear that the productivity increase will last. Research done by the World Bank on the effect of pandemics since 2000 shows they can deplete a labor force, weaken investments in physical capital and disrupt supply chains and innovation.² The organization’s conclusion is that epidemics ‘’have lowered labor productivity by a cumulative 4% after three years.’’

The effects the World Bank found sound similar to the recent news reports of restaurants, hotels and hospitals finding it difficult to attract workers to fill job openings.³ Manufacturers are finding it hard to hire, too, with one company offering a signing bonus and a three-day work week.⁴

As for supply chains, there are shortages of key items, whether computer chips or lumber, making it hard to meet the needs of a reopening economy. 

Meanwhile, 24 U.S. states are in the process of eliminating an unemployment weekly bonus worth $300 that’s seen by some as causing a shortage of available workers.⁵ Removing the bonus commits America to a real-time experiment about what’s causing a worker shortage. Money may not be the root of the problem.

Horizon Investments’ view is that financial advisors and their clients should expect the unexpected when it comes to the labor market and other economic data. No one in modern times has experienced a post-pandemic global recovery, so economic predictions have to be taken with a grain of salt, and economic data has to be taken in stride. We believe it is better to focus on the big picture of an improving economy rather than focusing on the potentially bumpy path along the way.

From a behavioral point of view, goals-based financial planning focuses on the goal in hopes that clients will filter out the day-to-day noise that can lead to poor decision-making. Clients’ ability to focus on the long-term has been tested for the past 15 months, and we believe the next few months will continue to be challenging as the U.S. takes a winding road back to a new sense of normal.