Education sector forecasted to boost jobs again in July: J.P. Morgan

Jesse Edgerton, J.P. Morgan US Economic Research Executive Director, joins Yahoo Finance to preview July Jobs report, JPMorgan’s forecasted growth for the Education sector and outlook on the labor market.

Video transcript

ALEXIS CHRISTOFOROUS: The highlight of the week for investors is expected to be the government's monthly jobs report due out on Friday. And we certainly did not get an encouraging precursor to that today in the form of the ADP report, which showed private employers added just 330,000 jobs in the month of July, less than half the number of jobs we added in June. Here to talk about it now is Jesse Edgerton, Economist at JPMorgan Chase. Jesse, good to see you again. So I'm curious on the back of that ADP report, what are your expectations for Friday's monthly jobs report?

JESSE EDGERTON: Well, we're still expecting a gain of 900,000 jobs in the official business report on Friday. I would say the ADP number this morning had a little bit of downside risk there, but the ADP number also tends to not be an especially reliable predictor of the official BLS number.

KRISTIN MYERS: So I want to ask, Jesse-- I want to know if you think that there's going to be some weakness that might remain in the labor market after the summer really ends.

JESSE EDGERTON: Sure. Well, I would say we are seeing some softening in the number of the high frequency indicators already as the Delta variant is spreading here. So even thinking about the July payroll report that we'll get on Friday, there has been a bit of deceleration already between June and July in some of the high frequency data we watch like our card spending numbers from Chase, and OpenTable diners, TSA travelers, things like that.

We were already seeing some deceleration from June into July, and then I think that's continuing further so far into August. So we are starting to see some pullback in things like card spending on airlines and lodging as people get more worried about the Delta variant here.

ALEXIS CHRISTOFOROUS: And I know that you expect education-related employment to provide a significant boost here. And is that just because we're going to be getting back to school and you see more of those folks re-entering the workforce again?

JESSE EDGERTON: Well, so for the July report that will come out on Friday, it's a little bit different where this is really kind of a distortion, I would say, to the seasonal adjustment process that might end up boosting the headline number that we're expecting to get on Friday. So the way that works is in a normal July, schools are laying off workers as they shut down for the summer. So in a normal July, we might expect to lose 1.3 million workers in the education sector just due to that normal seasonal process.

And the seasonal adjustment factors try to kind of correct for that and measure what the underlying signal is from the labor market looking through that normal decline that we always see. But under COVID, there's been such a decline in the number of people working in the education sector to begin with that we've been seeing smaller fluctuations, both in absolute and percentage terms month to month in the education sector. So essentially, this month for July, the seasonal factors are expecting a decline of 1.3 million jobs, but we think we're more likely to get something like a decline of 900,000 jobs or a million jobs.

And so that will effectively boost the headline seasonally adjusted number by, say, 350,000 jobs. So that's kind of pushing us up from, say, a 500,000 print up to more like 900,000, which is our forecast.

KRISTIN MYERS: I have to ask you here, Jesse, about the Delta variant. And it's a risk that we've heard so many folks talk about, from CEOs to investor strategists and analysts. And I'm curious to know if you think at all that the Delta variant right now is presenting a risk to the labor market, perhaps even to some of those educational jobs. Because we're hearing that schools right now-- not all of them are going to mandate mask-wearing, who knows what's going to happen in a couple of months-- if schools will become hotbeds again of the infection and of the virus. What kind of risk do you see the Delta variant playing right now?

JESSE EDGERTON: I do think it is a risk. Looking at the case numbers, they are rising fast everywhere, even in states that have a high fraction of people that are vaccinated. Honestly, the hospitalization numbers that we can see are also not looking that great-- rising fairly fast from low levels at this point, even in the highly vaccinated states. So it does seem like we're definitely going to get a very significant wave of cases here, right? Hopefully the relatively high levels of vaccination in most parts of the country will prevent a large rise in hospitalizations and deaths compared to previous waves.

And then it gets to be a bit of a debate about how people will react in terms of their behavior. Like I said, we are starting to see people pull back on their spending on airline tickets already, given what we've seen with the spread of the cases. And then we'll see if governments around the country start to more formally restrict activities again.

And I think by the end of August, we're likely to be seeing very, very high case numbers again if things continue on their current trend. And I think that does open up the question of whether schools are going to reopen fully in-person in September. And so that will be a big debate with very big implications, both for the labor market in the education sector and then also, of course, for whether parents will be able to fully go back to work.

ALEXIS CHRISTOFOROUS: That is the question. And, Jesse, I'm wondering when you think we might see the job market return to pre-pandemic levels. I read something recently that said it could be the end of this decade that we gain all of those jobs back. I believe we're still down about somewhere like 7 million jobs. What do you think in terms of a timeline?

JESSE EDGERTON: That is right. We're still down 7 million jobs from the peak. And you know, normally, we would expect that number to trend up over time. So you know, we're even a little bit further below the pre-COVID trend. I do think aside from this dip that we're likely to see due to the Delta variant here, we were on a fairly steady 500,000-ish pace. If you stayed at that level, it would take 14 months, I guess, to make back those 7 million jobs that we're down. So I do think, assuming we can kind of get past a potential detour with the Delta variant, that we could see the labor market getting back to closer to what we think of as normal, say, two years from now.

ALEXIS CHRISTOFOROUS: All right, we're going to leave it there. Jesse Edgerton, JPMorgan Chase's Economist, thanks so much for being with us.