Despite slowing economic growth, rising inflation and worries about a potential recession, workers remain relatively hard to come by—and it’s not totally clear why, according to The Wall Street Journal (subscription).
An economic puzzle: “Gross domestic product growth slipped into negative territory in the first half of the year. Borrowing costs have risen steeply as the Federal Reserve boosts interest rates in an attempt to reduce inflation. Even so, monthly payrolls have grown an average of 438,000 from January through August, nearly three times their 2019 pre-pandemic pace.”
- Many companies are still grappling with COVID-19-related staffing shortages.
- Though many businesses continue to hire, some economists say that to stay profitable, these firms will probably cancel openings in the near future rather than reduce their existing staffs.
Softening on the horizon: “The labor market should cool over the coming months, and we are already seeing signs of such softening in the employment data,” NAM Chief Economist Chad Moutray told us. “We know that manufacturers continue to struggle to find sufficient talent, holding back growth and hampering their ability to produce to meet demand.”
The numbers: Last month, the Federal Reserve Board forecasted that the unemployment rate, which was 3.7% in August, would rise to 4.4% in Q4 of next year, according to the Journal.
- Other economists expect a sharper rise in unemployment, according to the Journal, with one predicting more than 5% by the end of 2023.
Pandemic fallout: “Economists Robert J. Gordon and Hassan Sayed found that companies in sectors like construction, utilities and mining laid off too many workers during the 2020 lockdowns. With employment falling faster than sales, productivity—output per hour—jumped. As the economy reopened, the reverse occurred. Hiring outpaced sales, and productivity fell.”
A boon for workers: Employees are the ones benefiting from the situation. “Job switchers reaped annual pay increases of 8.4% in August, averaged over three months, up from a 5.8% annual rise at the start of this year, according to the Federal Reserve Bank of Atlanta.”
- The Federal Reserve is concerned that continued high wages will keep inflation elevated.
Interest rate backfire: Some prominent economists believe that it’s the Fed’s interest-rate raises that will hurt the economy, as they will undo “the widespread labor-market gains that stemmed from a historically fast rebound.”