June 2021 National Economic Outlook

Better Job Growth in May; Fed Still Not Ready to Reduce Asset Purchases

Executive Summary

The May jobs report was good but not great. The U.S. economy added 559,000 jobs over the month according to a survey of employers. But after April’s disappointing report (+278,000 jobs, after revisions), the improvement in May is proof that the labor market is recovering solidly from the Viral Recession. 

  • The private sector added 492,000 jobs in May, while government employment rose by 67,000. 
  • The three-month moving average of job growth through May was around 540,000. With employment in May still down by about 7.6 million, or 5%, from its pre-pandemic peak, at this pace it would take a little more than a year for employment to return to where it was in early 2020. 
  • The unemployment rate fell to 5.8% in May from 6.1% in April and 6.0% in March. 
  • The unemployment rate is down from a peak of 14.8% in April 2020, but remains well above the 3.5% pre-pandemic rate.

The Federal Open Market Committee kept monetary policy unchanged in its June 16 statement. The federal funds rate is staying in a 0.00% to 0.25% range and the central bank is maintaining monthly purchases of $80 billion of long-term Treasurys and $40 billion of mortgage-backed securities, putting downward pressure on long-term interest rates. 

Conditions for raising the fed funds rate were also unchanged from the previous statement on April 28: the FOMC does not expect to increase the fed funds rate until the job market is at full employment and inflation is set “to moderately exceed 2% for some time.” 

The FOMC expects to maintain its securities purchases until the economy has made “substantial further progress” toward its employment and inflation goals. However, more than one-half of FOMC participants expect to increase the fed funds rate in 2023; in the previous “dot plot” from March, the median fed funds rate remained in its current near-zero range until at least 2024.

Inflation has picked up in the spring of 2021, but much of the acceleration will prove temporary. In year-over-year terms, consumer price index inflation accelerated to 5.0% in May from 4.2% in April, the fastest pace since August 2008, when surging energy prices caused an inflationary spike. The year-over-year comparison is deceptive, however, since consumer prices fell last April and May as the economy entered freefall. Relative to February 2020, consumer prices were up 3.1% in May 2021.

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June National Economic Outlook

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