The unemployment rate is somewhat deceiving, as the level of slack in the labor market remains high. Including the number of those not in the labor force who still want a job and those working part-time who want full-time employment, the number of underemployed actually rose slightly in May and remains elevated.
Given this, recent fears of an overheating labor market appear premature. On a non-seasonally adjusted basis, net hiring was just shy of 1 million, the fourth consecutive month of job growth at this pace or greater. Accommodation and food services companies hired a stunning 220,600 employees in May, mostly in bars and restaurants, now growing by 9% over the first five months of 2021 alone. But employment in the sector remains 14% below pre-pandemic levels, so many of these jobs are simply rehiring temporary layoffs as dining establishments return to higher capacity and travel returns.
Wages rose again in May, while the pace of wage growth slowed. Average hourly earnings for nonsupervisory employees have risen by an annualized 4.4% so far in 2021. While this is a positive sign coming so soon out of a recession, it does deserve some additional context. The 2021 pace of wage growth is healthy but in line with historical averages — far from running hot.
Furthermore, a significant portion of the wage increases this year have been in leisure and hospitality, the sector with the lowest wages. Rather than evidence of a worker shortage, this appears to be catch-up from a fall in wages in 2020. The leisure and hospitality sector includes restaurants, bars and hotels, industries hit the hardest by the pandemic and among the most COVID-risky businesses now coaxing workers back.
Prolonged labor tightness may happen much sooner than it typically has after prior recessions given the rapid fiscal response to the downturn, but with 22 million people still wanting more work, it remains unlikely to broadly occur in 2021.