The labor market is expected to gradually improve over the coming months, building on the 379,000 new jobs reported by the U.S. Bureau of Labor Statistics for February. The Conference Board’s Employment Trends Index (ETI) also increased in February, following an improvement in January. The index now stands at 101.01, up from 99.69 in January, and its February figure is down only 7.8 percent from a year ago, which was The Conference Board’s last pre-COVID reading.

“The Employment Trends Index increased again in February and signals strong job growth in the coming months,” says Gad Levanon, head of The Conference Board Labor Markets Institute. “The combination of declining new infections, lower pandemic-related restrictions, households flush with savings and large government stimulus will all contribute to robust growth in economic activity and employment in 2021. The economy is likely to add five-to-six million jobs through the end of the year, and the unemployment rate will drop well below five percent. When the pandemic hit, a tight labor market appeared years away, but it may reemerge as soon as 2022.”

The Conference Board’s ETI aggregates eight labor market indicators, each of which has proven accurate in its own area. Aggregating individual indicators into a composite index filters out “noise” to show underlying trends more clearly. February’s increase was driven by positive contributions from six of the eight components.

In February, the unemployment rate dropped slightly from 6.3 percent to 6.2 percent, while the labor force participation rate remained unchanged at 61.4 percent. Most of the country’s job gains were in the services sector. Leisure and hospitality employers added 355,000 jobs, of which 286,000 came from the food services industry, likely due to the easing of restrictions in some areas. The number of jobs in the goods-producing sector decreased because of job losses in construction related to inclement weather in February.

“Looking ahead, The Conference Board expects gradual improvement in the labor market over the coming months,” says Frank Steemers, senior economist at The Conference Board. “The number of infections has significantly decreased since early January, more people are being vaccinated, and states have lowered or are expected to lower restrictions on consumer and business activity. Fewer restrictions may boost employment growth, especially in in-person services. By late spring, job growth is expected to accelerate, partly driven by anticipated further government stimulus that will boost consumption spending, and could help create or preserve jobs through the PPP program and aid to state and local government.”

Steemers adds, “The prospect of stronger employment growth and the unemployment rate, which could drop below five percent in the second half of 2021, provide an upbeat outlook for the labor market in 2021. However, on the downside, the number of jobs is 9.5 million below a year ago, with the small majority being women, and it is still a long way to make up for that loss. Especially those working in in-person services—primarily people without a college degree as well as Hispanic and Black workers—have had more difficulty returning to work. In addition, the labor force participation rate of 61.4 percent in February remains below its rate of 63.3 percent from a year ago and has not shown any sign of improvement just yet. A return to normalcy and strong economic growth could pull people back into the labor market over the coming months, but it is not yet clear if this will lead to a full recovery in participation.”