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National Economic Indicators

Research staff regularly monitors the national economy, helping the Richmond Fed grasp current conditions and their implications for monetary policy. Updated weekly, the following data is part of the information presented during policy discussions and meetings with our board of directors.

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February brings the first monthly employment figures of 2021. Nonfarm payrolls increased by 49,000 in January, compared to a decline of 227,000 in December (revised downward from a 140,000 decline). The vast majority of the gains — 43,000 jobs — were in the government sector, a sign that schools are moving more quickly to bring students and educators back into classrooms. In addition, we continue to see indications of an unequal, "K-shaped" recovery. For example, leisure and hospitality payrolls fell by 61,000, while professional and business services payrolls grew by 97,000. February's employment report also revealed that the impact of the COVID-19 resurgence in late 2020 was worse than initially believed, with the previous two months' payroll employment figures revised downward by 159,000. Overall, the labor market recovery from the pandemic remains far from complete, with payroll employment remaining more than 9.8 million jobs below February 2020 levels.

Despite payroll employment remaining below the pre-pandemic peak, the unemployment rate improved to 6.3 percent in January from 6.7 percent in December. However, this partly reflected a drop in labor force participation to 61.4 percent in January versus 61.5 percent in December. The participation rate remains below the pre-pandemic level of 63.3 percent. Among those not in the labor force, 4.7 million people reported they did not look for work due to COVID-19. January saw the third straight monthly increase in people who did not look for work due to COVID-19, suggesting there is a growing pool of people that could potentially return rapidly to the labor force if mass vaccination efforts are successful. If all these people had been counted as part of the labor force, the participation rate would have reached 63.2 percent.

The composition of unemployed workers will be key to the labor market recovery this year. An important distinction is between workers laid off for temporary reasons, who may be easier to rehire, versus those laid off for other reasons. In January, temporary layoffs contributed 1.7 percentage points to the headline unemployment rate, with nontemporary layoffs contributing the remaining 4.6 percentage points. This composition was similar to the December report, and workers who suffered nontemporary layoffs may face a more difficult road ahead. Another key watch area is the share of long-term unemployed (those who have been out of work for 27 weeks or more), who may experience more challenges in being rehired. In January, the long-term unemployment share rose to 39.5 percent from 37.1 percent in December — moving closer to the share we experienced following the Great Recession.

Unemployment that remains elevated versus the pre-pandemic unemployment rate of 3.4 percent, and a significant share of nontemporary and long-term unemployed are among the considerations that led the Federal Open Market Committee to maintain monetary policy at accommodative levels at its January 26-27 meeting.

Commentary by John O'Trakoun updated February 8, 2021. The views expressed are those of the author and do not necessarily reflect those of the Federal Reserve Bank of Richmond or the Federal Reserve System.

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