Friday’s NFP likely mark the onset of a noninflationary, V-shaped recovery. At 379,000 against less than 200,000 expected, Friday’s bumper non-farm payrolls (NFP) number probably signals the start of economic normalization. The sectors that the pandemic has hit hardest, leisure and hospitality, accounted for most of the increase. The weak employment recovery in these sectors is largely responsible for what has been a K-shaped economic recovery until now.
Also, February hourly earnings were flat despite the bumper increase in NFP – another sign of normalization. Wages in leisure and hospitality tend to be lower than in other sectors. Consequently, the March-April spike in unemployment was accompanied by a spike in wage growth that reflected a compositional effect, i.e., a decrease in low-wage employment, rather than labour market tightness. The reversal of this compositional effect in February is another sign that labour market conditions are returning to normal.
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