President Biden’s Economy is Roaring with New Jobs and Low Unemployment

By Shawn Snyder, Global Investment Strategist, J.P. Morgan Wealth Management

The U.S. labor market has added nearly 3 million private sector jobs in the past year, and the unemployment rate remains close to 50-year lows.

But will this hot streak last? While the Federal Reserve is trying to cool things down, we have reason to believe that the labor market can make it through this summer without reaching a point of exhaustion.

A key component of the U.S. economy’s resilience has been its remarkably healthy labor market. Over the past year, the private sector has added an impressive 2.8 million jobs – about 85% better than the average annual job growth seen since 1980. This is also reflected in the unemployment rate, which at 3.9%, remains close to its lowest level in over 50 years. But who’s hiring? And, more importantly, who’s firing?

Given the aging U.S. population, it shouldn’t come as a surprise that the healthcare sector has accounted for nearly 30% of the jobs created over the last year. Local government, construction and the hospitality and food services industries come in second, third, and fourth place. Combined, these four sectors accounted for almost 60% of the job gains.

U.S. employment growth (Last 12 months)

In terms of job losses, the pain has been felt most acutely in temporary help services (a subcategory of administrative and waste services), which lost 185,000 jobs over the past 12 months. In fact, temporary help is often the first sector to show labor market weakness, as it’s often easier for companies to let go of temporary help than to lay off salaried employees. Information services also felt the pain, with publishing and telecommunication services having shed jobs as well.

However, we should acknowledge that the current reductions aren’t as deep as those typical in a recession, as initial claims for unemployment insurance remain low—and this may suggest more of a normalization than a deterioration.

Temporary help employment vs. initial jobless claims (Thousands)

In terms of who’s paying, wage gains have been broader than job gains, with national average hourly earnings rising by 3.9% over the past year. Still, one must account for the impact of inflation to determine if wage gains are enough to maintain purchasing power. Interestingly, most sectors have seen real wage gains with a few exceptions (e.g., lower-wage healthcare positions, arts and entertainment and educational services).

U.S. average hourly earnings by sector

We believe that real wage gains should also not be overlooked as a contributing factor to the economic resilience seen to date. With wages outpacing inflation, consumer spending has likely been much more robust than economists accounted for back in early 2022 when equity markets experienced a deep selloff. That said, real wages have fallen now for three consecutive months as the Federal Reserve attempts to cool, but not stall, the labor market.

U.S. private sector real average hourly earnings (YoY%)