Disconnection from labor market raises concerns about economic recovery | News, Sports, Jobs


FILE – In this file photo from Tuesday, July 27, 2021, a help-seeking sign is displayed at a gas station in Mount Prospect, Ill. The gap between record-breaking job openings and the shortage of people filling those jobs is forcing Wall Street to reassess the pace of the economic recovery. (AP Photo / Nam Y. Huh, file)

The gap between record-breaking job openings and the shortage of people filling those jobs is forcing Wall Street to reassess the pace of the economic recovery.

Jobs were cut during the pandemic and job growth has been a closely watched indicator for investors. Increased employment ultimately leads to increased consumer spending, which is the main engine of economic growth. Without the first, analysts said it will take longer than expected for the economy to function at semblance of normal before the pandemic.

“This time horizon is getting longer,” said Rob Haworth, senior investment strategist at US Bank Wealth Management.

The Ministry of Labor reported that vacancies reached 10.9 million in July, the highest recorded in 2000. Yet there were around 8.7 million people considered to be unemployed during that same year. months, which is the largest such gap between available jobs and unemployed since the Labor Department began tracking job postings in 2000.

Typically, the gap is much wider in the other direction, with more unemployed than job vacancies.

The increase in COVID-19 cases is one of the main culprits in the job divide. People are reluctant to return to work due to health concerns as the highly contagious delta variant spreads, analysts said. Many are also concerned about child care as schools open for a new year with a high level of unpredictability due to the virus.

More than 22 million jobs were lost in March and April 2020 when the pandemic caused widespread business closures. About 16.8 million of those jobs returned through July 2021 in a seemingly rapid recovery, but the jobs crisis remains even more severe as the recessions of 1974, 1981, 1990 and 2001 were at their worst, according to Ross Mayfield, Investment Strategist at Baird.

“Labor market developments are among the most significant in the world today,” Mayfield said in a note to investors. “A late recovery will keep the Federal Reserve on the sidelines, but will also limit economic growth.”

The Federal Reserve is also closely monitoring the recovery in the job market. The central bank has made it a priority to maintain its policy of keeping interest rates low until it is satisfied with the recovery in employment. This has left investors torn between the balance between the benefits of a slow job recovery that prolongs low interest rates and the damage to longer-term growth if the economy continues to struggle for recovery. full recovery.

The inability to regain any semblance of full staff means that many businesses, especially in the service sector, cannot take full advantage of increasing consumer demand. Hotels, for example, find it difficult to meet any increase in demand if they don’t have the full staff to serve paying customers.

The gap between job vacancies and who holds those jobs has also prompted companies to raise wages and offer bonuses. These higher wages have raised concerns among analysts that wage inflation could add to already rising inflation and dampen the broader recovery.

“A lot of companies are coming out and we’re starting to see bearish forecasts,” said Katie Nixon, chief investment officer at Northern Trust Wealth Management. “We are now seeing strategists kind of take their foot off the accelerator.”


Comments are closed.