March 5, 2021
The February jobs report was strong, with job increases in leisure and hospitality signaling that consumers are becoming more comfortable visiting public places. But unemployment is still stubbornly high, and the jobs deficit between pre-pandemic and current levels remains wide. Meanwhile, mortgage rates continued to push higher.
The labor market logged a much-needed win in February…
The economy added 379,000 jobs in February from January.
More than 350,000 jobs were added in the hard-hit leisure and hospitality sector.
…but questions about the labor market's longer-term prospects.
The market is 12 million jobs behind where it would be if pre-pandemic growth had continued through the year.
Exits from the labor force during the pandemic have been particularly pronounced among Black and Latinx women.
Mortgage rates push higher for the third straight week
Inflation expectations and investors' reaction to comments from Federal Reserve Chair Jerome Powell helped drive rates upward.
Mortgage applications rose 5% on the week and remain above last year's pre-pandemic levels.
Strong February jobs figures were a boost that the labor market sorely needed, and one that might set the stage for a rush of hiring in coming months. The addition of 379,000 jobs in February from upwardly-revised January figures was the strongest monthly improvement for the labor market since October and the latest evidence that the economy is gaining momentum. The strength of the report was driven by significant gains in the leisure and hospitality sector, which added 355,000 jobs on its own. The sector remains the hardest-hit of any – it's still down 3.5 million jobs, or 20.4%, from a year ago. But the strong monthly improvement suggests consumers are dipping their toes back in the water and visiting restaurants, hotels and other personal services, and that employers are planning for a larger uptick in activity as the economy continues to improve.
But while headline February jobs numbers were positive, broader questions remain about the labor market's prospects going forward. The economy remains 9.5 million jobs below where it was this time last year, and 12 million behind where it would have been had pre-pandemic job growth continued over the past year. And while the headline unemployment rate dropped a tenth of a percentage point to 6.2%, an alternative measure produced by the White House's Council of Economic Advisers suggests that a more realistic unemployment rate is closer to 9.5%. Labor force participation has disproportionately declined among Black and Latinx women during the pandemic, highlighting the significant demographic gaps that persist across the labor market. Finally, February's strong improvement was almost entirely attributable to workers that returned to the labor force after being temporarily laid off. The number of those on temporary leave fell by 517,000 on the month, or nearly 19%, while the number on permanent leave held flat at 3.5 million — 2.2 million more than this time last year. There are some fears emerging that the pandemic may have eliminated some jobs forever — which, if true, poses significant challenges both to those that used to occupy those positions as well as the broader economic recovery in the years to come.
Mortgage rates pushed higher once again this week, as investors' heightened expectations for inflation continue to place steady upward pressure on longer-term bond yields. With consumer spending on the rise, the COVID vaccine rollout continuing to gain momentum and more fiscal stimulus likely on the way, investors seem to believe that inflation may soon push well above the established 2% benchmark — putting the Federal Reserve in a difficult spot. Market participants appear to be simultaneously expecting two things: That the central bank will eventually raise rates or scale back on bond purchases in order to rein in inflation, which has already been priced into the market; and also that the Fed will take a more active approach to dampen longer-term interest rates by purchasing more longer-term bonds. Fed Chair Jerome Powell reiterated this week that there are no plans to tighten policy anytime soon, but stopped short of addressing steps the Fed could take to reduce bond yields – which drive mortgage rates – in the near term. Mortgage rates jumped higher following the remarks, and have moved even higher since. With the days of all-time low mortgage rates seemingly behind us, the path forward does appear to be an upward-sloping one, though it's unclear if the spikes that have occurred in the past month will endure. Rising rates have led to a slowdown in for-purchase mortgage applications, though volume remains slightly ahead of last year’s pre-pandemic pace.
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