Where are the American workers?
Economists, Federal Reserve officials and employers had for months hoped millions of workers would re-enter the workforce in September, when improved federal unemployment benefits expired and in-person school resumed after a year of distance learning that kept many parents from working. The September jobs report was finally released, and it showed anything but a rushed return to work.
There is a good explanation which cannot be dismissed. The rapidly spreading variant of the Covid-19 Delta has undoubtedly curtailed some return-to-work plans, especially in industries hardest hit by the pandemic. It was then that public education jobs fell by 144,000, which many analysts attribute to a seasonal adjustment.
And there are other reasons to look beyond the worst hire since December. Job growth in August was revised much higher while the July payroll was also boosted, meaning that job growth in the three months through September averaged 550 000, notes PNC chief economist Gus Faucher. At the same time, the unemployment rate fell to 4.8%, the lowest level since March 2020 as the pandemic unfolded.
These reasons for remaining optimistic do not go further, however, to improve another paltry month of hiring. There’s another way to read stock weakness, and it’s a lot less positive: September’s jobs report is more of a signal for inflation than a signal from the labor market.
“It’s definitely an inflationary report,” says Citi economist Veronica Clark. “Fed officials should look into this and worry more about inflation,” she said, adding that the Delta effect explains only a small part of the worsening labor shortage. artwork.
Consider that the fall in unemployment is largely a function of the shrinking workforce, which fell by a tenth of a percentage point last month. With labor supply remaining limited, wages rose 0.6% from August, the fastest pace since April, when compared to numbers depressed by the pandemic. Of course, the September payroll survey was conducted at the height of Delta Peak. But it’s time to question whether economists, policymakers and investors are not blaming the labor shortage too much on the temporary factors of Covid-19.
The workforce is still down by around 4.9 million since the start of the pandemic, and it increasingly appears that large numbers of displaced people may not return, says Michael Darda, economist in chief at MKM Partners, which means that they are effectively out of the labor supply equation and should not be counted in the loosening measures that justified the pursuit of extraordinarily easy monetary policies.
As proof, he points to the number of dropouts from the labor force who say they want a job. Darda says this measure, if added to the unemployed population, tends to track the unemployment rate. At the start of the pandemic, the gauge was unusually high relative to the unemployment rate, but that is no longer the case. Current reading of 8.2% is only 3.4 percentage points above the actual unemployment rate of 4.8% and close to the pre-Covid average of 3.3 percentage points, says Darda .
“In other words, the idea that there is a reserve army of unemployed despite an unemployment rate of 4.8% is belied by these data. Additionally, the nature of the pandemic may have altered the natural rate of unemployment and thus altered the pattern of future wage and inflation rates relative to unemployment rates, ”he said.
There is good reason to believe that many workers are not coming back. In addition to the lasting concerns of Covid, economists and strategists point the finger at early retirements and a reassessment of “work” by millions of Americans. A record number of businesses have been launched since the start of the pandemic, and Luke Tilley and Tony Roth, chief economist and chief investment officer at Wilmington Trust respectively, note that a recent Harris poll showed that 55% of those polled reported knowing someone who quit a job because “you only live once”.
The rapid decline in unemployment is great until it is not. Darda says if the average monthly decline seen this year continues, the unemployment rate would drop to 2.9% by mid-2022, around the time the Fed plans to completely cut its monthly purchasing program. of bonds. And it would settle at 1.6% by the end of 2022, before many officials say they expect to start raising interest rates.
The point is, current monetary policy and forecasting rests on the expectation of a return to a pre-Covid labor market that increasingly appears to no longer exist. If so, then where does that leave the Fed and investors?
As the Fed waits for millions of people to return to work before raising interest rates, inflation continues to mount. “The reality is that nominal demand has returned to its pre-Covid trend growth path and is expected to continue growing much faster than [capacity] as the pandemic recedes and the economy reopens in a wall of nearly $ 4 trillion in cash / disposable assets, ”says Darda.
Clark, of Citi, notes that excess savings now represent about 10% of gross domestic product, which perhaps gives some young workers a few extra months of leisure before re-entering the workforce. She doesn’t count on a late return to work for many workers, but says it seems increasingly elusive.
If millions of workers are gone for good, it is a much different story from what the Fed tells. For all the talk of officials about tools to deal with inflation, there is really only one: interest rates will have to rise faster and faster. The longer the inflation takes and the underlying forces are left on their own, the greater the risk that the problem will be difficult to correct.
Write to Lisa Beilfuss at [email protected]