Last month saw disappointing growth in payroll employment, with just 266,000 jobs added in April, when many expected a number well over 500,000 (and maybe even over a million). Ahead of tomorrow’s release of the jobs report for May, we want to put that headline number in perspective, particularly in how this relates to policy choices.

The Biden administration has clearly decided to go big on the amount of fiscal support they are going to provide the economy over the next year—passing the $1.8 trillion American Rescue Plan (ARP) on the heels of a $900 billion package passed in December. They are determined to not repeat the policy mistake that led directly to a lost decade of economic potential after the Great Recession in 2008-09, when the government provided too little fiscal support. It took 10 full years after the Great Recession just to regain the pre-2008 unemployment rate low point, and even when this unemployment rate low was regained in 2017, it was partly because labor force participation still remained depressed. All of this raises a couple of questions: Just how much faster can recovery be this time, and would another month as disappointing as April make this fast recovery impossible to attain?

We think one reasonable metric of success would be a full return to pre-COVID labor market conditions by the end of 2022. These pre-COVID conditions included an unemployment rate of 3.5% and a prime-age labor force participation rate of 82.9%. Restoring pre-COVID labor market health by the end of 2022 would require creating 504,000 jobs each month between May 2021 and December 2022. This average monthly jobs growth target starts from today’s 9.0 million “jobs gap” relative to February 2020, and includes the need to absorb growth in the working-age population over the next 20 months (this growth in the working-age population requires roughly 55,000 jobs per month on its own). Hitting this end-of-2022 goal would see the U.S. economy reach 4.0% unemployment by mid-2022.

If we need 504,000 additional jobs on average each month between now and 2022 to hit our labor market goals, this means that last month’s 266,000 was indeed pretty disappointing. Would another month of far below-consensus job growth in May doom us to missing these goals? Not at all. Figure 1 below shows average monthly job growth in the first five years of consistent labor market recovery following the Great Recession (the red horizontal line) and the actual monthly job change over that time. This figure tells us a couple of things.

First, there’s a lot of volatility in the month-to-month data. For any average growth rate over a long horizon (say over a year), the month-to-month changes routinely come in far above and far below this average. And two consecutive months of below-average or above-average growth were common in the period highlighted in this figure. Even in 2012 when the labor market was steadily improving, job growth fell short of the 2010-2014 average growth rate in five consecutive months that spring and summer and then in two consecutive months again in the fall.

Additionally, the data for 2010-2014 displayed in Figure 1 actually show significantly greater job growth than was reported in real time during those years. Benchmark revisions—an annual correction of job growth statistics that are based on a near-census of all establishments—added nearly 300,000 jobs annually between 2011 to 2014 (after subtracting nearly 400,000 in 2010). These benchmark revisions tend to correct for real-time data errors that often occur at business cycle “turning points,” where years with job growth swinging from positive to negative are often revised even further downward while years with newly positive job growth are often revised even further upwards.

Furthermore, if we consider that we need 504,000 jobs on average between now and 2022 to hit the pre-pandemic labor market benchmarks, the average of the last three months—even including the disappointing April number—hits that target. Even with last month’s 266,000, average job growth over the last three months was 524,000.

Second, since the start of 2021, the pace of job growth is far above what we saw on average during the first five years of recovery following the Great Recession. Over that period, monthly job growth averaged 1.6% (expressed as an annualized rate). The fastest three-month pace of job growth during the entire period was 3.0% in March-May 2010. This 3.0% job growth came from the absolute trough of the labor market following that recession, with unemployment averaging 9.8% in those three months. Further, it was aided by the sharp burst of fiscal support provided by the American Recovery and Reinvestment Act (ARRA) coming online. If ARRA-level support had continued much deeper into the recovery, job growth would have been far faster, but this support began winding down by late 2010.

Over the most recent three months, the monthly pace of annualized job growth has averaged 4.5%, coming out of a labor market with less obvious slack. (Unemployment averaged 6.1% over this period—though that almost surely understates true slack given the sheer number of people who left the labor force during the pandemic and aren’t counted in the official unemployment measure today.)

So, in short, April saw disappointing job growth, and another bad month of job growth is not something anybody is wishing for. But, even one more month of disappointing job growth would not constitute grounds for declaring the strategy of large fiscal expansion failed. Even with the tough April number, job growth in 2021 is about 50% faster than the fastest three-month stretch in the first five years following the Great Recession.

When would a string of consecutive slow job growth months become worrisome? Three straight months of below-consensus employment growth numbers would start to feel less like a statistical blip and more like a worrisome trend. But even in that scenario, it’s unlikely that the right policy response would be to simply pull back hard on fiscal support—some of the job growth disappointment of April, for example, was anemic employment growth in state and local government employment. With that said, some handwringing and reassessment after three straight months of significantly below-consensus job growth would make a lot more sense than doing it now—or even after tomorrow’s jobs report numbers come out.

To be clear, while a swift return to pre-pandemic labor market conditions would be welcome, we must not overstate the wonders of the pre-pandemic labor market. Black workers had a higher unemployment rate before the pandemic than white workers have now. Disparities in wage levels were wide and occupational segregation was rampant. Parents had trouble accessing high-quality child care and millions of people lived in poverty. We need to continue to make investments in our physical and human capital infrastructure to grow back faster and stronger.

Finally, with all this talk about the headline payroll employment growth number, we should really keep in mind that there are many other indicators that need to be examined to get a reliable gauge of labor market health. Other notable data and potential trends to watch for in Friday’s release include:

• Continued growth in leisure and hospitality in May, with a particular eye on subsectors such as full-service restaurants and drinking places. What may have initially appeared to be potentially a labor shortage driving wage growth in that sector, may in fact simply be a return of tipping customers to restaurants pushing wages upwards.
• Continued drop in teleworking in May. After spiking in May 2020, teleworking because of the pandemic has fallen significantly over the last year. Unfortunately, huge disparities in who can telework remain particularly with regards to race and ethnicity as well as educational attainment.
• Continued rise in long-term unemployment. While the unemployment rate has significantly recovered since it shot up in March and April 2020, those with longer and longer spells of unemployment continue to rise.
• Continued return of workers back to the labor market, more optimistic about their job opportunities and their health and safety as people across the country continue to get vaccinated.
• Who is being left behind by the recovery. For instance, employment growth in the recovery thus far has been stronger for white workers as Black and Hispanic workers remain further from their pre-pandemic employment rates.