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Thursday, September 9, 2021
An economic riddle, wrapped in a pandemic
The current state of economic play can be accurately summarized using an artful (at least I’d like to think) paraphrase of Winston Churchill. In 1939, the historic wartime leader famously described Russia as "a riddle, wrapped in a mystery, inside an enigma."
On Wednesday, two key economic releases basically showed us how COVID-19 has essentially transformed the U.S. economy into a riddle of its own — but this one’s wrapped in a sizzling hot jobs market inside a pandemic.
With the market struggling to recover from last week’s payrolls disappointment, the Labor Department (ahem) JOLT-ed trading with July’s Job Openings and Labor Turnover Survey (JOLTS).
Despite Wall Street’s hand-wringing over growth, the JOLTS data revealed that the labor market has literally never been hotter, with nearly 11 million unfilled jobs across the world’s largest economy, a series record.
Meanwhile, the Federal Reserve’s Beige Book — a semi-regular temperature reading of the U.S. economic activity — found that growth “downshifted slightly” last month as a resurgence of COVID-19 infections took a toll on dining, travel and tourism. Nevertheless, business activity is still being defined by inflation, worker shortages and supply bottlenecks.
Taken together, the two releases underscored that, as the Delta-variant driven surge of infections becomes the meta-narrative for growth, the economy has learned to adapt. In fact, certain sectors (like technology, revived in part by the “stay-at-home trade” helping to curb the Nasdaq’s (^IXIC) recent losses) are actually thriving.
In a research note, veteran Wall Street economist Chris Rupkey at FWDBONDS came in from the top rope by calling this economic dichotomy “the strangest recovery from any recession” he’s ever seen as a professional economist.
Rupkey, a critic of the Fed’s ultra-accomodative monetary stimulus, said that the JOLTS data “tells us the labor market is tight as a drum with the demand for labor the highest in history.”
ING noted that while some of the vacancies noted in the JOLTS data may have evaporated last month, “this report still suggests the appetite to hire is incredibly strong.”
The bank also reaffirmed a theme that’s become part of the post-nonfarm payrolls analysis: job creation is petering out simply because employers already have too many open jobs they can’t fill.
With approximately 50% of small businesses having unfilled positions, “the weakness [in payrolls] is primarily due to a lack of workers being willing or able to take the jobs available and [has] little to do with any perceived lack of demand,” according to ING.
The JOLTS data also has implications for soaring prices — expect things to get worse before they get better, because employers feel compelled to continue hiking pay. Pointing to a “quit rate” that shows employees leaving their old jobs in favor of new ones at an all-time high, ING said companies “no longer think purely about having to raise pay to attract staff but also need to consider raising pay for staff retention purposes.”
To be sure, a seeming bumper crop of jobs may be cold comfort for workers in industries like bars, restaurants and retail shops, where job creation is clearly going the wrong way.
However, it does suggest that — if workers so desire and if they have the requisite skills — they may be able to obtain employment in other sectors like construction, manufacturing and retail trade, where hiring remains robust.
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