4.4 million people quit their jobs in February 1:41
(CNN Business) --
The United States is fast approaching a major jobs milestone that underscores the historically strong recovery from Covid-19.
By the end of August, the labor market will have fully recovered all the jobs lost during the pandemic, Fitch Ratings projects in a new report shared first with CNN.
If that happens, it means payrolls would have returned to pre-crisis levels in just two years.
By comparison, Fitch said, it took six years and five months for the job market to fully recover during the painfully slow recovery from the Great Recession.
The goal of recovering all the jobs lost since the start of covid-19 by the end of the summer seems feasible.
The United States is only about 1.6 million jobs away from February 2020 levels.
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This means that payrolls would have to grow by about 400,000 jobs a month to return to pre-pandemic levels.
The economy added 431,000 jobs in March and Friday's jobs report is expected to show another 405,000 jobs were gained in April.
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13 states have recovered pre-crisis employment levels
Like Fitch, Moody's Analytics expects a return to pre-crisis employment levels in the third quarter, ending September 30.
Some parts of the country have already caught up.
Thirteen US states, including Florida, Georgia, Colorado and Arizona, have already fully restored all jobs lost during covid-19, according to Fitch.
An important caveat, however, is that the US labor market has not fully recovered the jobs that would have been created had the economic downturn not occurred.
Moody's estimates that the labor market would have 4.5 million more jobs than it currently has if the economy maintained its pre-pandemic job growth trend.
Still, the fact that employment is expected to return to pre-Covid-19 levels this summer underscores how quickly the country is recovering from the health crisis, due in part to unprecedented support from the Trump and Biden administrations. Congress and the Federal Reserve.
Concerns about a possible boom and bust
In fact, the job market seems to be too active.
This raises the specter of a boom-and-bust scenario, in which an overactive economy shuts down due to high inflation.
Fitch warns in its report of "acute labor shortages in many states," especially in the West and Midwest.
According to Fitch, the ratio of job openings to unemployed people hit post-pandemic highs in 20 states in February.
This key indicator of labor shortages is especially high in Nebraska, Utah, and Montana, where the number of unfilled jobs is triple the number of unemployed.
One of the problems is that some workers are left out, which limits the supply of labor.
This is due to a number of reasons, including covid-related issues, high childcare costs, and withdrawals.
According to Fitch, only eight states have fully recovered – or surpassed to some extent – their pre-Covid workforce participation rate.
The labor force participation rate for Vermont, Nevada, and Maryland remains more than four percentage points below pre-crisis levels.
The good news is that the highly competitive job market has pushed up wages, especially among lower-income workers.
And workers have the flexibility to leave their jobs and get better ones.
However, wages remain out of range with prices, which have reached a 40-year high.
Paychecks adjusted for inflation are shrinking.
An "unhealthy" level
One concern is that the job market is too tight, and that is making inflation worse.
The Fed is about to get tight on inflation 1:09
The Federal Reserve wants to avoid a wage-price spiral, in which high prices cause workers to demand higher wages, which leads to higher prices, and so on.
Fed Chairman Jerome Powell noted during a March news conference that there are at least 1.7 jobs open for every unemployed person nationally.
"That's a very, very tight labor market, tight to an unhealthy level," Powell said.
The Fed hopes to cool down the labor market, and inflation, by raising interest rates.
The goal is for rising borrowing costs to ease demand, giving supply a chance to catch up.
That should alleviate inflation, allowing the economic expansion to continue.
If this doesn't happen, the Federal Reserve could be forced to raise interest rates even more aggressively, slowing down the economy to the point where it risks triggering a recession that will push unemployment up yet again.