"It will be incredibly compelling to see what the jobs market will look like after the recovery. We could see a new future of work, and that's when things get really interesting. The playbook has changed and is being rewritten now, right before our eyes." - Nela Richardson, Chief Economist at ADP

The June jobs report left analysts a little confused about the economy's direction. On one hand, the economy gained 850,000 new jobs, which is an incredible result under regular circumstances. On the other, the country still needs to recover roughly 7 million jobs to get back to pre-pandemic levels, so growth is slow for a society heading back to normal.

In our sixth monthly Q&A, Nela Richardson, Chief Economist at ADP, speaks with us about how to interpret this data, as well as the ongoing retail workforce transformation.

Q. What did the June jobs report mean for the economic recovery?

Richardson: "This is an odd recovery. There's still all this friction in the system. Many daycare centers and schools haven't reopened so families continue to juggle childcare, there's lingering health concerns.

Early in the pandemic, hiring was also easier because firms could just recall their short-term unemployed workers. The situation is different now. Long-term unemployed used to be just 4% of total unemployment. Now it's 42%. It takes a longer time to bring back these workers. Employers may need to find new people as some of their lost workers shifted to other fields. All this slows down labor growth.

It's not as if the June jobs report was terrible. It was a strong report, but it fell short of the million jobs a month pace that many analysts were expecting at the beginning of the year. It's like you were hoping for an A on the report card and instead got a B+. Even though job gains weren't as strong as the economic growth would indicate, for overall trends, what we want is continued momentum and strength. We're seeing that, given the improvement from April to May to June.

Over the summer, we expect more people to get vaccinated. We expect child and eldercare centers to continue to reopen, and supply shortages to be alleviated. In other words, we expect the economy to return to normal. It's a funny situation as we know more about what the future economy will look like than we do about the present, creating these confusing data points."

Q. What's the impact in different industries?

Richardson: "Leisure and hospitality are reacting the way we'd expect. They have the most to gain from improving health conditions, restaurants especially.

Industries that did well during the pandemic, such as grocery and liquor stores, are seeing a decline in employment. This shows that consumer behavior is changing. It's a little surprising to see the shift happening so suddenly.

Construction is also perplexing. Even though demand for housing is so hot, construction employment is declining. Something else must be going on. There's been a persistent shortage of construction workers since the Great Recession. You hear stories of a construction crew hiring on another worksite, trying to lure away a competitor's workers. This gap used to be filled by immigration, which is still restricted.

Last, there is an ongoing restructuring for sectors like retail. Even before the pandemic, we were seeing retail workforce transformation, such as seismic shifts to e-commerce. It's happening even more now and that is affecting hiring. There are a lot of moving parts in the jobs market, some due to the recovery and others tied to long-term trends."

Q. What's going on with reported worker shortages?

Richardson. "There's been a lot of anecdotal evidence about worker shortages, but not the evidence of a long-term shortage, such as strong employment growth in a specific field, higher wages and a declining unemployment rate. If there was a long-term issue, we'd need to see that on top of company reports.

Whatever shortages we're seeing — and we are seeing widespread evidence — should be temporary. Soon, the pandemic market frictions will end and there should be fewer shortages and more hiring. Some industries could still deal with long-term issues given labor market shifts, like retail, leisure and hospitality.

People have pointed to more generous unemployment insurance (UI) benefits as to why people aren't coming back. Over 20 states are now ending these UI benefits. This will be a natural experiment. We'll see if ending the UI helps hiring in those areas.

For business owners looking to hire, the recruiting methods used last year might not work this year. They could try sourcing from a wider pool of applicants. Offering on-the-job training could help with a skilled worker shortage, especially in locations with a lack of talent. Going forward, the focus may shift to the quality of workers, not the quantity. Employers need to think a bit more broadly about hiring in this new world of work."

Above: Nela Richardson in MainStreet Macro: Small Business@Work

Q. When will the labor market return to normal?

Richardson. "I think a lot will be settled by September, assuming there are no other pandemic surprises. By then, a lot of the questions regarding the economy and health conditions should be (hopefully) answered. We'll know more about the consumer response to reopening, inflation and also if the new normal includes some changes to the workforce.

I'm not saying employers should wait until then to hire, but they should expect things will be a little unsettled for the next couple months. The friction in the jobs market outweighs that in the overall economy, which is why I always felt the job recovery would lag the economic recovery.

How long also depends on the industry. There are some sectors, like professional services and finance, that weren't really touched by the pandemic. They shifted to virtual and competition for talent looks very similar today to what it was in February 2020, when unemployment was at a 15-year low.

For other sectors, it's a totally different story. Retail, transportation, mining and natural resources, these industries are still far from what they were a year ago. Wages and hiring rates were already weak before and the pandemic exacerbated existing problems. The people who lost their jobs were mostly low income, low pay and low flexibility. Figuring out how to transition them to better jobs with forward career paths will be a key policy question going forward.

It will be incredibly compelling to see what the jobs market will look like after the recovery. We could see a new future of work, and that's when things get really interesting. The playbook has changed and is being rewritten now, right before our eyes."

It's a truly unique point in history, and chances are there are more surprises ahead of us.

For Richardson's insights on the very latest economic data and trends, check out her Main Street Macro blog.

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