Here’s what’s next for the US job recovery

Economists polled by Refinitiv expect 490,000 job openings to be added in the March jobs report released on Friday. If the forecast turns out to be correct, the country will restore more than 90% of all jobs lost during the pandemic. It will also raise the unemployment rate to 3.7%, which is new pandemic era low.
Monthly increase in jobs an average of over half a million over the past 12 months, a truly staggering rate compared to pre-pandemic numbers. For example, in 2019, the monthly average was only 164,000 people.

On the one hand, this shows how successful the recovery is. On the other hand, it serves as a reminder that the slowdown must eventually happen when the economy returns to normal.

“I expect the pace of hiring to slow, but I think it’s important to say that this is due to supply constraints,” said Simone Mokuta, chief economist at State Street Global Advisors.

Weekly jobless claims also returned to more normal levels, with 202,000 workers filing for initial seasonally adjusted unemployment benefits last week. This is slightly more than economists predicted, but in line with pre-pandemic levels.

Meanwhile, the number of Americans who filed for benefits for at least two consecutive weeks fell to 1.3 million in the week ending March 19, a seasonally adjusted low since December 1969.

The labor shortage that characterized much of the recovery was never resolved. Between high demand from businesses and fewer people in the workforce, competition for talent is fierce.

IN In February, the country had 11.3 million jobs, but only 6.7 million people were employed. Economists believe that it will take time for this mismatch between labor demand and supply to decrease. At the same time, wages are rising businesses compete to attract and hire staff.

In terms of economic data, this means that some indicators that were close observation at an earlier stage of recovery will fade into the background.

“I’ve almost reached the point where I think the number of jobs itself is becoming secondary,” Mokuta said.

Instead, data on labor force participation and wages will be much more important.

“For me, it’s about the supply of labor and the price of labor. I know what the demand for labor is,” Mokuta added.

As of February, the labor force participation rate was 62.3%, still below the pre-pandemic level of 63.4%. This means that there are still workers who left the workforce during the pandemic. Reasons for this included childcare, concerns about contracting the coronavirus, and early retirement of older workers. At the same time, wages increased slightly. in February, but rose more than 5% in the previous 12 months.

But higher wages did not match the rise in prices recorded by the main indicators of inflation. Latest CPI Shows Rising Inflation last month at a rate not seen in 40 years.

Mokuta hopes wage inflation will ease this year, though it’s hard to see how else the imbalance between worker demand and supply could be addressed.

“A good reason to leave work and get back to work has to do with rising prices, and not just at the grocery store and at gas stations,” said BMO Senior Economist Jennifer Lee.

The bottom line is that businesses also pass on their higher labor costs to consumers, but there is a limit to how much people will be willing and able to Absorb.

“It is very difficult to determine when the turning points occur. In fact, this can only be said in hindsight,” Mokuta said. But she believes that the conditions for this are ripe.

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