NEW YORK: Wall Street’s most bullish economic forecasts hang on a simple prediction: everybody will flood back soon to their local gyms, bars and yoga studios as if the pandemic was in the past.
A jobs boom in the vast U.S. service sector – the nation’s largest employer ranging from software developers to the local Chipotle – is a central part of bold calls on growth this year, report agencies.The thinking is that vaccines and mounting immunity unleash pent-up demand, which stirs a hiring wave that drives unemployment sharply lower. The Federal Reserve sees the jobless rate dropping to 5% by the end of 2021 and some in the private sector including Goldman Sachs Group Inc. and Deutsche Bank AG have projections in the 4% range.
The Labor Department provides a fresh look on the service sector with the February employment report on Friday. The unemployment rate is expected to tick up to 6.4% from 6.3%, according to a Bloomberg survey.
Weak readings in December and January, which coincided with an escalation of U.S. virus cases, were concentrated in sectors such as leisure, hospitality and retail. The service sector, which currently employs 122 million people, has almost nine million less workers than when the pandemic struck early last year.
Fed Chair Jerome Powell said last week he was worried about permanent disruptions in service sector employment in comments to the House Financial Services Committee.
“What we’re going to find based on some of the surveys we’ve heard about is that not all of those jobs are going to come back because people have started to implement automation,” Powell said. “Many of those people may find it hard to get back to work, and I think they’re going to need further support.”
Labor-saving technology introduced during the pandemic is just one reason why the optimistic forecasts are riddled with uncertainty.Nobody knows how long cautious consumer behavior will hang around even in the wake of widespread vaccination, or how many small businesses have failed, or whether companies have just found they can meet demand with fewer employees.
“We can’t tell based on the data right now how fast things are going to come back” in services, said Ernie Tedeschi, policy economist at Evercore ISI in Washington. “There are reasons to be optimistic.”
He points to potential for a bounce back as vaccine distribution improves, especially in sectors such as hospitality and retail. But he also worries that the U.S. doesn’t have good readings on small business closures. Nor do economists understand how fast women who left work for child care will come back to the labor force, or how fast businesses who scaled down their workforce will hire back.
“There are frictions and bottlenecks from converting demand into supply,” said Tedeschi. “Re-opening a new restaurant to replace one that has closed permanently is not a matter of flipping a switch. It takes capital, financial relationships, and all that takes even more time.”
Dan Price, the chief executive officer of Seattle-based Gravity Payments, which serves 20,000 customers including many small businesses, is worried.