The US economy is recovering fast from the COVID-19 pandemic. Yet the jobs market is short of ten million workers when compared to pre-pandemic levels. How fast can the gap be closed?
Last Friday’s Non-Farm Payrolls (NFP) data was a big miss. The analysts expected close to one million new jobs to be created in April, but the economy added only about a quarter of that number.
Despite the initial disappointment, the number was not that bad. After all, adding 266k jobs a month would be staggering under normal conditions i.e. discounting the pandemic.
But the cold shower came when the actual is compared to the pre-pandemic trend in job growth. There is still a gap of ten million jobs between the actual employment and the 2019 employment level – where will those jobs come from, and more importantly, when?
At the current rate of 266k a month, there’s a long way up to normality. Because job creation is part of the Fed’s mandate, together with price stability, the Fed is reluctant to unwind the quantitative easing tapering.
Plentiful Job Openings and High Unemployment – Stagflation Next?
When compared to the start of the pandemic, the labour market improved significantly. Stimulated by the fiscal and monetary efforts, the labour market picked up and job openings numbers increased.
In a normal recession, businesses have a hard time employing people for the simple reason that there is no demand. With no demand, job openings can’t rise.
But this time it’s different. Plenty of jobs exist, but they are hard to fill. This leads to an unusual situation known by economists as stagflation.
Stagflation is an economic phenomenon described by high unemployment and high inflation. Currently, both are either rising (inflation), or stubbornly high (unemployment).
So amidst all these, what are the Fed and government to do? Economics 101 tells us that periods of stagflation have no cure – the economy should be left alone to heal itself. Yet, the stimulus is still running at full speed, both monetarily and fiscally.
Above is a breakdown of the net new jobs in April when compared to March. The distribution is skewed, and the key driver was the leisure and hospitality sector – a key sector for a service-based economy such as the United States.
Therefore, to fill the jobs gap, one of two things must happen. Either the leisure and hospitality sector keeps hiring at a similar or bigger pace than the one seen in April, or the other sectors compensate for the difference.
In both cases, we talk about months, if not years, until the ten-million-jobs gap is filled.