Will service sector fuel or prolong recovery?
Some economists say largest U.S. employer will see a jobs boom. Others aren’t so sure.
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 including software developers and restaurants — is a central part of bold calls on growth this year.
The thinking is that vaccines and mounting immunity will 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 have projections in the 4% range.
The Labor Department provides a fresh look on the service sector with the February employment report 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 a surge of virus cases, were concentrated in sectors such as leisure, hospitality and retail. The service sector, which employs 122 million people, has almost 9 million fewer workers than when the pandemic struck early last year. Fed Chairman Jerome H. Powell told the House Financial Services Committee last week that he was worried about permanent disruptions in service sector employment. “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,” he said. “Many of those people may find it hard to get back to work, and I think they’re going to need further support.”
Cautious consumer
Labor-saving technology introduced during the pandemic is just one reason why the optimistic forecasts are riddled with uncertainty.
Nobody knows how long consumers will remain cautious after 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.”
Challenges ahead
Dan Price, chief executive of Gravity Payments, a Seattle company that serves 20,000 customers including many small businesses, is worried. “We have had a 50% increase in the percentage of businesses going completely out for good,” he said. “It has been tough to see.”
Many of Price’s customers, who use Gravity for card processing, spent years establishing their businesses. If they start over, it will take time to rebuild. Those still in business have found it difficult to hire because the pandemic has lasted so long.
Two examples from different industries show how some have thrived while others are trying to pivot.
Case studies
Rosin Optical Co., an eye care company that serves more than 100,000 patients, reduced staff by about 80 professionals, though some were voluntary retirements.
Nicholas Chiaramonti, a Rosin executive vice president, is optimistic on the recovery. Working and studying from home have been tough on the eyes of parents and their children.
“Patient demand was immediate” when restrictions lifted in April, he said. “Our schedules are full.”
Still, Rosin doesn’t plan to rehire anytime soon.
The pandemic led J.M. Brennan, founded in 1932, to let go of 100 workers, the first large-scale staff cuts in the Wisconsin commercial contractor’s history. Brennan’s work in commercial office space has been put on hold. Its hospital contracting has been delayed.
Matt Brennan, whose grandfather founded the company, is trying to shift to areas in which the economy is doing well, such as food services, but it’s challenging.
“There is so much uncertainty,” said Brennan, who predicts the labor market recovery will be slower than expected. “This isn’t going to be like, ‘We’re flipping a switch, we defeated the virus, and we are done.’ ”
A revival in service sector spending and hiring “is absolutely essential for GDP growth to get back to a normal pace,” said Bloomberg senior U.S. economist Yelena Shulyatyeva, who forecasts unemployment of 5.7% by year-end.
The weakest part of the snap-back argument, she said, is the presumption that people quickly forget the health risks. “There will be some pockets of strength, but I absolutely cannot see us going back to pre-crisis behavioral norms.”