Region now over 50% of the way to full recovery
Over the weekend, Nobel-prize winning economist Paul Krugman ran a short article on inflation that echoes many of the points I was making in last week’s newsletter, but for the U.S. as a whole. Krugman observes that while prices are rising these days, for the typical consumer, they are not rising in “worry areas” like housing. Out here it’s gas prices; other areas are seeing surges in hotel and restaurant prices. This is all just part of the adjustment the economy is going through from the pandemic recovery. He even uses a similar component-level analysis to what I did in the second part of my article last week. You are reading cutting-edge analysis right here in this newsletter!
The labor market continues to recover at a modest rate. Nonfarm employment in the region declined 4.1% between March 2020 and March 2021, up slightly from a 5.7% decline between February 2020 and February 2021. Most industries outside of Trade, Transportation, and Utilities (+7.4%) are still down from their pre-pandemic levels, most notably Professional and Business Services (-2.5%), Education and Health Services (-2.1%), and Government (-9.0%). We saw some gains in construction employment (+2.2%). The table below plots current employment levels against the trend we were on pre-pandemic (linear trend in non-seasonally adjusted employment from January 2010-March 2020). The faster the green line can get back to the gray dotted line, the better. This is the single-best way to track the economic recovery.
The recovery is in progress. Based on the employment gap analysis I mentioned a few weeks ago, after dropping 13.1% off from trend employment in April 2020, employment is now only about 6.3% off from trend as of March 2021. Replication files here.
The labor market has a little under halfway to go before it is back to normal.