According to a forecast by Goldman Sachs, which predicts a surge in service increases, unemployment could fall to near the spot before the Covid-19 pandemic this year.
The company projects an unemployment rate of 4.1%, which could be even lower, depending on how strong the recovery is amid more fiscal stimulus and a return to work in sectors that hit the coronavirus the worst.
Furthermore, the forecast that the economy will return to its salary level before the pandemic by the end of 2022 sees an opinion that Finance Minister Janet Yellen supported in an interview with MSNBC on Monday.
“The main reason we expect a surge in service growth this year is that reopening, fiscal stimulus and pent-up savings should spur very strong growth in demand,” Goldman economist Joseph Briggs said in a note. Although the forecast is already the lowest on Wall Street, there is still a possibility of a return to the pre-pandemic rate in the middle of the three years. ‘
In February 2020, just before the pandemic, the unemployment rate stood at 3.5%, the lowest in more than 50 years. The rate rose to 14.8% in April 2020 amid operating outputs to limit the spread of the coronavirus, and dropped to 6.2% by February.
Yet total employment remains about 8.5 million lower than it was a year ago.
A return to work for displaced hospitality workers, coupled with another round of massive government spending, is expected to keep the rate lower.
“Another important reason why we expect a rapid recovery in the labor market is that two-thirds of the remaining job losses are in highly virus-sensitive sectors, where employment must recover if the economy resumes in full,” Briggs wrote. “The sharp rise in the virus-depressive recreation and hospitality category in the employment report in February gave an early indication of the future.”
In fact, the sector added 355,000 jobs in February, accounting for nearly all of the 379,000 non-farms added during the month, according to a Labor Department report Friday.
On top of that, there seems to be a lot of relaxation in the bar, restaurants and hotel space. The sector is still almost 3.5 million workers lower than 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 rents, Goldman says growth in government wages will also help lower the unemployment rate. The government’s jobs decreased by 1.65 million compared to a year ago, and the group was the biggest pressure on the February jobs report because it lost 86,000 jobs.
Part of the call also includes the expected growth in the labor force participation rate, an important dynamic to measure not only employment but also engagement.
The rate dropped to 61.4% from 63.3% a year ago as 4.2 million Americans left the workforce. The decline was particularly strong among women, falling to 57% from 59.2% in the past year, and for Blacks to 60.1% from 63.1%.
“Most workers who have left the workforce still cite the pandemic as the reason and are likely to re-enter once life normalizes,” Briggs said.
Although Goldman has the strongest employment on Wall Street, several other forecasters expect big gains throughout the year.
Citigroup economist Andrew Hollenhorst noted that the 379,000 wage gain in February was actually a little lower than the 410,000 the company expected. Hollenhorst noted that “there were clear signs that restaurants were starting to resume their activities after slowing down at the end of 2020, and that came through in today’s report.”
“The continued increase in seating activity indicates that it will be a source of support for work in the coming months,” he added.
An employment index compiled by the conference council reached 101.01 in February, which is about 7.8% lower than a year ago. Gad Levanon, head of the council’s Labor Markets Institute, said the current trend indicates an unemployment rate that is “well below 5%” by the end of 2021.