Goldman Sachs predicts an employment growth and says the unemployment fee may drop to 4.1% by the tip of 2021
Unemployment could fall almost as much this year as it did before the Covid-19 pandemic, according to a forecast by Goldman Sachs that is facing a hiring boom.
The company is forecasting an unemployment rate of 4.1%, which could be even lower depending on how strong the rebound comes amid stronger fiscal stimuli and a return to work for the sectors hardest hit by the coronavirus.
In addition, the forecast is that the economy will return to pre-pandemic levels well before the end of 2022, which Treasury Secretary Janet Yellen confirmed in an interview with MSNBC on Monday.
“The main reason we expect a hiring boom this year is because reopening, fiscal stimulus and pent-up savings should fuel very strong demand growth,” Goldman economist Joseph Briggs said in a note. Although the forecast on Wall Street is already the lowest, there is still “the possibility of a return to prepandemic rates by the middle of three years of this year”.
In February 2020, shortly before the pandemic, the unemployment rate was 3.5%, its lowest level in more than 50 years. The rate rose to 14.8% in April 2020 due to operational shutdowns to contain the spread of coronavirus and has now fallen to 6.2% by February.
Nevertheless, total employment fell by around 8.5 million compared to the previous year.
A return to work for displaced hotel workers, coupled with another round of massive government spending, should lower this rate further.
“Another major reason for a rapid labor market recovery is that two-thirds of the remaining pandemic job losses are in highly virus-sensitive sectors, where employment should rebound when the economy fully reopens,” wrote Briggs. “The surge in the virus-depressing leisure and hospitality category in the February Employment Report provided an early indication of what was to come.”
The sector created 355,000 jobs in February, matching nearly all of the 379,000 non-farm payroll offices added during the month, according to a Labor Department report on Friday.
In addition, there seems to be a lot of leeway in the bar, restaurants and hotel. The sector is still nearly 3.5 million workers lower than a year ago, and the unemployment rate there is still 13.5% compared to 5.7% a year ago.
In addition to increasing hospitality hiring, Goldman said that growth in government payrolls should also help lower the unemployment rate. Government jobs are down 1.65 million year over year, and the group was the biggest drag on February jobs report as it lost 86,000 jobs.
Part of the call also includes expected growth in the labor force participation rate, a key dynamic in measuring not only employment but also engagement.
The rate has dropped to 61.4% from 63.3% last year as 4.2 million Americans left the workforce. The decline was particularly pronounced among women, falling from 59.2% last year to 57% and among blacks from 63.1% to 60.1%.
“Most workers who have left the workforce still cite the pandemic as a cause and will likely recur once life returns to normal,” Briggs said.
Although Goldman has the strongest employment outlook on Wall Street, several other forecasters expect big gains over the course of the year.
Citigroup economist Andrew Hollenhorst noted that February’s 379,000 wage increase was actually slightly lower than the 410,000 the company had expected. Hollenhorst noted, “There were clear signs that restaurants were reactivating after the slowdown in late 2020 and this was reflected in today’s report.”
“The continued increase in restaurant seating suggests that this will continue to be a source of support for jobs in the months ahead,” he added.
An employment index compiled by the Conference Board reached 101.01 in February, a decrease of about 7.8% year over year. Gad Levanon, director of the Labor Markets Institute’s board of directors, said the current trend points to an unemployment rate of “well below 5%” by the end of 2021.