The weird job market, explained

The pandemic created a lasting effect on how economists look at job-market data.
article cover

Francis Scialabba

· 4 min read

If the current US economy were a picture hanging on your bedroom wall, it would look more like a dizzying M.C. Escher print than a serene Ansel Adams landscape.

Welcome to Wackadoodle Economics, dear reader: The US economy added 528,000 jobs in July, shrinking the unemployment rate to 3.5%. The number of jobless Americans has returned to levels unseen since February 2020, according to Bureau of Labor Statistics (BLS) data. But the strong numbers are tempered by weird signs: Inflation soared to a 40-year high of 9.1% amid crippling gas prices in June, while GDP shrank in the second consecutive quarter—a sign that economists usually see as a bellwether for a looming recession. The tech industry has experienced layoffs and the Fed has hiked interest rates to tame rampant inflation.

Experts are scratching their heads: Becky Frankiewicz, president and CCO for North America at the employment agency ManpowerGroup, said in a company email Friday that the dynamic is “challenging the rules of economics.” Many job-market projections have been wrong this year. Last week’s jobs report, for example, showed the US added more than twice the number of jobs economists had expected. Here’s why the experts may be as befuddled as you.

The pandemic mucked everything up. “We had a once-in-a-century event happen, and that’s gonna goof up your instruments,” Marc Cenedella, CEO of résumé-writing service Leet Resumes, told Vox in July. Highly fluctuating data, such as Covid-19 case counts, presented wrinkles that upset traditional forecasting models. The onset of the pandemic saw historic job losses, but the workforce bounced back in 2021, creating a labor shortage as businesses struggled to fill an abundance of roles.

“A lot of models are still informed by labor demand and have a hard time capturing that there are jobs out there but there aren’t enough workers," Wells Fargo senior economist Sarah House told CNN in January.

Quick-to-read HR news & insights

Our HR newsletter delivers need-to-know industry news and insights to HR pros every weekday for free.

The pandemic understandably gave economists pause, but now—even as the Fed raised interest rates by 0.75% last month, for the second time this year, to tame inflation—things are resuming a more traditional pattern in some industries. Daniel Altman, the chief economist at staffing site Instawork, told HR Brew in an email: “It’s tough to forecast the jobs numbers right now, because we have several trends intersecting.”

He explained, “While some companies have pulled back on hiring because of recession fears, others are benefiting from a return to normalcy as the pandemic comes under control. This is especially true in leisure and hospitality, where we saw hourly pay for flexible workers rise by 2% to 3% in July alone…on our platform.”

Seasonal adjustments missed big in 2021. The BLS presents data that has been adjusted to reflect seasonal fluctuations in the labor market—around the holidays, for example, the retail industry’s employment numbers tend to swell—but these fluctuations were wilder at the end of 2021 due to the rise of the omicron variant. Krieg Tidemann, assistant professor of economics at Niagara University, told GOBankingRates in February:

“The seasonal adjustment methods are designed for normal periods that do not experience the once-in-our-lifetime employment swings seen during the pandemic period. This led the monthly initial jobs reports to wildly overstate job growth in summer 2021 and understate new employment in fall 2021.”—SB

Do you work in HR or have information about your HR department we should know? Email [email protected] or DM @SammBlum on Twitter. For completely confidential conversations, ask Sam for his number on Signal.

Quick-to-read HR news & insights

Our HR newsletter delivers need-to-know industry news and insights to HR pros every weekday for free.