Moderate US jobs report lower odds of Fed action in 2021

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The United States created just 266,000 jobs in April, disappointing those who had called for an increase almost four times as large. Employment in sectors that have been particularly affected by public health measures to fight COVID – such as schools, hospitality and tourism – has increased by 335,000 new jobs, meaning that employment global contracted in the rest of the economy.

We struggle to rhyme the big picture with indicators of booming business confidence in the manufacturing and service sectors (see Table 1), with consumers reporting that they see job availability as much improved. and with solid readings on a range of hard spending data.

There are several alternative, possibly complementary, explanations: short-term constraints on labor supply; the limits on how quickly workers and vacancies can be matched; and data noise.

Reasons why workers do not want to accept work

The additional US $ 300 per week to UI has been cited as making it extremely difficult to hire workers in various positions, especially those in the lower end of the income distribution. Plus, parents still face the challenge of juggling distance education and a job. For public jobs, fears of contracting COVID could still hold workers back.

Although the additional federal payment of $ 300 per week is available – until early September – applicants eligible for full benefits will receive around $ 650 / week – which roughly equates to a full-time job at $ 16 of the hour – without working.

This should clearly discourage work. In this case, the next four months could see slower job creation, high working hours and rising wages.

However, last summer emergency unemployment benefits were twice as generous as they are today and twice as many people were asking for them, but it did not appear to be causing huge difficulties for companies to bring workers back to work. leave.

Also, it’s unclear why this should have suddenly become a serious problem – Supplemental Unemployment Insurance (UI) has been in place since January. In addition, some of the industries that should have viewed high levels of UI as the biggest barrier to hiring workers – those with the lowest wage rates – are precisely those that have seen the gains in employment. most important jobs: hospitality and entertainment.

Is the hiring process the cause?

One difference between now and last summer is the role of temporary layoffs (see Exhibit 2). As the US economy reopened until late spring / early summer, most of the gigantic rebound in jobs was due to people who were working in February 2020 but were fired when COVID hit , joining their former employers. Rehiring should have been straightforward for both the company and the employee.

Today, more of the new jobs are created through the traditional, but more complicated, recruitment system. The time it takes employers to navigate this process likely caps the rate of new hires in a month.

However, given the strength of the data in March (770,000 new jobs), when such a matching issue should have also occurred, it seems hard to believe that this alone caused much job creation. lower than expected in April.

Noisy data?

There may have been a data problem. However, there is no obvious smoking gun. Like all economic data, sampling errors can produce inconsistent results. Data from April could just be an example of this.

Other data will be closely examined to see what explanation holds.

Assuming this is a labor supply problem, the numbers are likely to continue to be skewed by the incentive effect of high levels of UI throughout the summer. . However, once this expires in early September, the underlying balance should reveal itself. Until then, the picture will be blurry with sub-optimal hires and oversized wages and hours.

What does this mean for US monetary policy?

With the Fed having made the “substantial” improvement in the labor market a criterion for reducing its purchases of quantitative easing (QE) assets, data for April shows that the bar has not yet been reached (see Figure 3).

In the absence of a report on explosive jobs for May, we do not anticipate any progress on the reduction plans at the policy meeting in mid-June. President Jay Powell has spent a lot of time pushing back on the idea of ​​changing monetary policy in response to “transient” inflation over the next few months. It’s hard to see it act any differently in response to a transient labor supply blow.

If the Fed doesn’t even start talking about cutting QE at the June meeting, it could be very difficult to cut the QE program by the end of this year while still sticking to Powell’s pledge to give a lot. notice to market. This pushes the odds of a decrease in early 2022.


All opinions expressed herein are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may have different points of view and may make different investment decisions for different clients. This document does not constitute investment advice.

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