U.S. Job Growth Likely Accelerated in June, Economists Say

Job growth fell short of expectations earlier this spring, despite a high level of job openings. Recent weeks may have brought a shift toward stronger job growth.

More workers have received a Covid-19 vaccine; enhanced jobless benefits in many states have ended or will by early September; rules limiting capacity at businesses during the pandemic have eased or expired; and companies have been raising wages and offering signing bonuses to lure workers back. In one healthy sign, the number of workers applying for unemployment benefits—a proxy for layoffs—fell last week by 51,000 to 364,000, a pandemic low, the Labor Department said Thursday.

While the labor market has significantly recovered since the depths of the pandemic, it remained more than seven million jobs short of where it stood just ahead of the pandemic. The unemployment rate in February 2020 was 3.5%. But it has fallen from the April 2020 level of 14.8%, a post-World War II high.

“The floodgates have opened for events and food service and they didn’t open with regards to getting staff back,” said David Lombardo, general manager of Lombardo’s, a venue that hosts events in an ornate hall in Randolph, Mass., south of Boston. After the pandemic hit the economy in March 2020 and forced the hospitality industry to shut down, the company laid off 140 of its 148 employees—servers, cooks, hosts and planners.

With pandemic restrictions lifted this spring and vaccination rates rising, the venue has fielded a stream of requests to host weddings, proms, bar mitzvahs, quinceañeras and other events. The company has hired back 40 people this year and is looking to hire 20 more. Lombardo’s isn’t alone: The broader leisure and hospitality sector, among the hardest hit by the pandemic, is now one of the sectors that could lead job growth later this year and next, given Americans’ desire to resume vacations, concerts, restaurant outings and other activities.

“We’ve started to see, in the last week or two, a surge in applicants coming to our door,” Mr. Lombardo said. He thinks one reason is the looming expiration in early September of a government program that has provided jobless workers with $300 a week on top of standard state unemployment compensation.

Another factor: The company has raised wages 15% to 20% this year, part of a broader trend across the U.S. Wage growth has accelerated in recent months as companies compete over a limited pool of applicants. In that respect, the labor market is likely hotter than the unemployment rate suggests.

Sung Won Sohn,

an economist at Western Alliance Bancorporation, said demand is rising as consumers, flush with cash from wage growth and government aid programs, are boosting spending on services they put off last year. But supply—mainly, workers—isn’t keeping up.

“Employment gains would be much greater if not for labor shortages,” Mr. Sohn said. He thinks those shortages will persist beyond this summer, and perhaps in the medium- and long-term. Mr. Sohn thinks it could take another year or so for the labor market to fully recover from the pandemic.

Labor-force participation, or the share of adults working or looking for work, was 61.6% in May, nearly 2% below its pre-pandemic level.

Many older workers who fell out of the labor force last year are opting to retire rather than return to their old jobs.

Other workers, with new leverage in a tighter labor market, are demanding not just higher wages but also more worker-friendly conditions, such as the ability to work from home more often, or in cities outside their companies’ home bases. He thinks those factors are already pushing up wages and will persist in the long run—which, while beneficial for many individual workers, could ultimately restrain economic growth. “One of the biggest issues the economy will face is the churning and turmoil in the labor market,” Mr. Sohn said.

The Federal Reserve is monitoring wage growth, the jobless rate and other data as the central bank tries to determine when and how quickly to pull back its efforts to stimulate the economy. Friday’s report could influence how quickly it moves.

Write to Josh Mitchell at [email protected]