Starting with the employment statistic that garners the most attention, the monthly nonfarm payroll number, here is a chart of the total number of nonfarm employees in the United States. 

After the initial free fall in employment in the first two months of lockdown, total employment has bounced back quite sharply over the last year. The only exception to this comes at the end of 2020, when there was a slight dip which lasted for only a month.

Looking at the chart, it seems that the optimism which pervades mainstream narratives, now firmly focused on “labor shortages”, is justified. After all, the US economy has been adding jobs back at a healthy clip. The only dark cloud is the fact that, despite the optimism and sharp bounce back post May 2020,  total nonfarm employees still have not recovered to their pre-Covid levels.

The same optimism is present in initial jobless claims, which have finally started to consistently come in below 700,000 a week. Note that this is after initial claims printed above 700,000 every week for a year. Needless to say, this haemorrhage of jobs needs to stop before the labor market can normalize in some way.

Fortunately, we have started to see some signs of this, with initial claims coming in at around the 400,000 level for the past month or so. While 400,000 is still almost double what initial claims were pre-Covid, and hence not an indicator of a healthy labor market; the trend is, after a horrible year, finally moving appreciably in a healthy direction.

However, just as with total nonfarm employment, there still remains cause for concern, as continuing claims have not followed initial claims lower.

This is evident on the chart, where the divergence between the number of initial and continuing claims can clearly be seen. Even as jobless claims began to fall in early April ‘21, and at an even faster rate in May, continuing claims remain stuck at the same ~3.7 million level.

Such a divergence points towards an economic situation where businesses are having to layoff fewer of their workers, indicating a slowing of the haemorrhage; but where previously laid off workers are still struggling to find their way back into employment.

In other words, in spite of the large progress made on the total nonfarm employment front, the labor market recovery is still nascent. Both stubbornly high continuing claims and nonfarm employment not yet recovering to pre-Covid levels illustrate this.

To be continued…