Unemployment could fall this year to approach where it was before the Covid-19 pandemic, according to a Goldman Sachs forecast that sees a hiring boom in the future.
The firm projects an unemployment rate of 4.1% that could be even lower depending on how powerful the recovery is amid more fiscal stimulus and a return to work for the sectors most affected by the coronavirus.
Additionally, the forecast calls for the economy to return to its pre-pandemic payroll level well before the end of 2022, a view that Treasury Secretary Janet Yellen endorsed in an interview with MSNBC on Monday.
“The main reason we expect a hiring boom this year is that the reopening, fiscal stimulus and accumulated savings should drive strong demand growth,” Goldman economist Joseph Briggs said in a note. Although the forecast is already the lowest on Wall Street, there is still “some possibility of a return to the pre-pandemic rate in the mid-3 this year.”
In February 2020, just before the pandemic, the unemployment rate stood at 3.5%, its lowest level in more than 50 years. The rate soared to 14.8% in April 2020 amid trade closures aimed at reducing the spread of the coronavirus, and has now fallen to 6.2% through February.
Still, total employment remains below 8.5 million from where it was a year ago.
The return to work of displaced hospitality workers, combined with another round of massive public spending, is expected to continue to drive that rate down.
“Another key reason we expect a rapid recovery in the labor market is that two-thirds of the remaining job losses from the pandemic are in sectors highly sensitive to viruses, where employment should recover as the economy fully reopens. “Briggs wrote. “The sharp rise in the virus-depressed entertainment and hospitality category in the February employment report provided an early indication of things to come.”
In fact, the sector added 355,000 jobs in February, representing nearly all of the 379,000 nonfarm payroll positions added during the month, according to a report from the Labor Department on Friday.
Also, there seems to be a lot of slack in the bar, restaurants, and hotel space. The sector is still below nearly 3.5 million workers from where it was a year ago, and the unemployment rate is still 13.5%, compared to 5.7% a year ago.
In addition to a boost in hospitality hiring, Goldman says the government payroll growth should also help reduce the unemployment rate. Government jobs are down 1.65 million from a year ago, and the group was the biggest drag in the February employment report, losing 86,000 jobs.
Part of the call also includes the expected growth in the labor force participation rate, a key dynamic to measure not only employment, but also engagement.
The rate has fallen to 61.4% from 63.3% a year ago, as 4.2 million Americans have left the workforce. The decline has been especially steep among women, falling to 57% from 59.2% last year, and for blacks, to 60.1% from 63.1%.
“Most of the workers who left the workforce still cite the pandemic as their reason and will likely re-enter once life returns to normal,” Briggs said.
Although Goldman has the strongest labor opinion on Wall Street, many other forecasters expect big gains for the year.
Citigroup economist Andrew Hollenhorst noted that the 379,000 payroll gain in February was actually slightly less than the 410,000 the company expected. Hollenhorst noted that “there were clear signs that restaurants had started to resume business after a slowdown in late 2020 and that was reflected in today’s report.”
“The continued increase in activity from seated canteens suggests that this will continue to be a source of support for jobs in the coming months,” he added.
An employment index compiled by the Conference Board reached 101.01 in February, 7.8% less than a year ago. Gad Levanon, director of the board’s Institute of Labor Markets, said the current trend indicates an unemployment rate “well below 5%” by the end of 2021.