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Monday, May 10, 2021
A labor demand problem would be worse. This wasn't that.
The April U.S. employment report stunned investors when it revealed employers added just 266,000 to their payrolls last month, far fewer than the 1,000,000 expected by economists.
"It is hard to square this middling outcome with a variety of other data indicating that the labor market is scorching hot," JPMorgan's Michael Feroli said. Indeed, lots of measures of activity and sentiment have pointed to the need for more hiring, which has actually been confirmed by falling initial claims for unemployment insurance and alternative reports on hiring.
Friday's report immediately ignited a massive debate among economists, policymakers, and pundits about the degree to which enhanced unemployment benefits are incentivizing capable workers to stay on the sidelines, exacerbating what may be a short-term labor shortage. We're sure this conversation will continue in the week ahead.
One crucial thing folks do seem to agree on about Friday's report is that it did not reflect a demand problem.
"The miss in nonfarm payroll growth in April certainly gives some credence to anecdotal reports of labor shortages and individuals not returning to work while remaining on supplemental unemployment benefits, suggesting this is a supply-side rather than a demand-side issue," Morgan Stanley economists wrote.
There's certainly no shortage of reports confirming robust demand for labor.
The National Federation of Independent Business said a record 44% of small business owners had job openings in April. Online job listing giant Indeed said the number of job postings was 24% above pre-pandemic levels. The Bureau of Labor Statistics, which publishes the official monthly payrolls report, recently said job openings were at a two-year high.
"We know from endless surveys that labor demand is very strong, but we also know from both surveys and media-reported anecdotes that firms are finding it hard to recruit people, despite a 6.1% unemployment," Pantheon Macroeconomics' Ian Shepherdson said.
This report still offers plenty of unanswered questions, not the least of which is the impact of enhanced unemployment benefits. How many of would-be workers are still fearful of COVID-19? Or struggling with childcare? Or just waiting to be called off of their furlough?
These are all arguably high quality problems as these labor shortage issues are largely occurring in the context of an economy looking to accelerate.
It may seem odd to put a positive spin on a jobs report that fell short of expectations by a historic margin. But it certainly would've been worse if the shortfall was due to lack of employers seeking workers (demand) instead of employers struggling to fill open positions (supply).
"Lack of labor demand is not the problem," Shepherdson said. "The end."
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