April jobs report disappoints: What happened, and how did economists get it so wrong?
Consensus forecasts predicted the economy added somewhere around 1 million jobs last month
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Most economists expected the April jobs report to show that employers had unleashed a torrent of new jobs, the latest piece of evidence that the economy was rapidly rebounding from the coronavirus pandemic.
Instead, the Labor Department reported Friday morning that employers added a measly 266,000 jobs last month and the unemployment rate unexpectedly inched up slightly to 6.1%, confounding the rosy picture of the American labor market.
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Consensus forecasts predicted the economy added somewhere around 1 million jobs last month amid increased vaccinations, easing business restrictions and trillions in government stimulus. At the same time, weekly jobless claims have pointed to a slowdown in layoffs as more Americans venture out to eat, travel and shop, with the number of unemployed Americans filing for first-time benefits falling to a new pandemic low last week.
But the jobs boom did not materialize, and the report marked one of the biggest downside misses on record, leaving some to wonder: What happened, and why did economists get it so wrong?
"We knew friction was coming in hiring, but no one expected it would come so soon," said Robert Frick, corporate economist at the Navy Federal Credit Union. "No single explanation or couple of explanations is apparent, but it looks to be a host of factors."
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Employers are having difficulty attracting new workers, weighing on the labor market's recovery from the pandemic. But experts say there's a host of explanations for the reticence among some unemployed Americans about returning to work.
Among them: Many parents are struggling to find child care with schools still closed for in-person learning, while others workers have said they're reluctant to return to their jobs out of concern they will contract COVID-19, or one of its more dangerous variants.
Some have also been quick to blame the trillions in government stimulus that Democrats singlehandedly approved in March. The so-called American Rescue Plan sent most households a $1,400 stimulus check and sweetened jobless aid by $300 a week through Sept. 6, 2021.
A recent Bank of America analyst note estimated that 4.6 million workers exited the labor force during the pandemic – and only half are expected to rejoin by the end of the year. For workers earning less than $32,000 annually, it's more financially lucrative to collect government aid, the analyst note said.
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The bank predicted that 2.5 million Americans will rejoin the workforce by the fall, but predicted that the remaining 2.1 people may be slower to go back to work – or may never rejoin the labor market at all. Another 700,000 Americans, meanwhile, are expected to have left the workforce due to a mismatch between their skillset and that required by the job.
"There have been a lot of anecdotes of employers having a hard time finding workers – and some people have pointed out that robust, extended unemployment benefits create a perverse incentive not to look for work," said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance.
Still, experts have cautioned that the labor shortage will likely be temporary.
"My guess is we'll come back to this economy where we have equilibrium between labor supply and labor demand," Federal Reserve Chairman Jerome Powell said during a press conference last week. "It may take some months, though."