As businesses begin to accelerate their reopening and ramp-up operations many are finding it difficult to fill positions despite high levels of unemployment. The unemployment rate increased in April to 6.1% and the chart below shows the growth in monthly U.S. non-farm payrolls has moderated following sharp gains last summer. The softened payroll numbers are contrasted by a steady increase in total job openings as the economy reopens and the availability of vaccines has expanded to the general population.
May non-farm payrolls increased by 266k, missing expectations for gains near one million. At the same time, total job openings increased to more than 8.1 million at the end of March, the highest level on record.
While there is clearly no shortage of unemployed, the record level of job openings signals a shortage of qualified or interested employees. And recent survey data backs up this claim. The NFIB Small Business survey shows 44% of small business owners reported job openings that could not be filled in April, a record high. The same survey also showed 54% of respondents reported few or no qualified applicants, which is the highest level since August 2019 when the unemployment rate was 3.7%. Further, the Conference Board Consumer Confidence survey shows a sharp divergence since the beginning of the year in job seekers’ assessment that jobs are plentiful vs. those responding that jobs are hard to get, signaling individuals looking for employment can find it.
The contrasting signals of underperforming employment growth and rising job openings, along with survey data confirming difficulty in hiring, indicate a labor shortage of qualified candidates and leads to the question of what underlying factors are causing this dislocation. While it is possible that seasonal adjustments are partially to blame for the large non-farm payrolls miss in May, we believe there are other near-term factors at play leading to the shortage of qualified labor.
These factors include generous government unemployment benefits (in some cases representing more income than previous job earnings), a growing skills mismatch as the recovery has positively impacted different sectors compared to the initial shutdowns (i.e., manufacturing and transport vs. retail and hospitality), businesses opening at a faster pace than schools and daycare centers leading to at-home parenting requirements and a fear of contracting or spreading the virus in the workplace.
If held unchecked, these constraints will continue to weigh on the labor market and have direct investment implications. Over the near-term, current supply imbalances are likely to be extended, leading to greater inventory shortages and higher wages which will weigh on economic growth. Over the medium-term, inflation may rise as increasing wage pressures flow through to higher consumer prices. Resolving these factors is crucial to sustaining the economic recovery and achieving the Federal Reserve’s goal of full employment and stable prices.
NFIB Small Business Economic Trends, William C. Dunkelberg and Holly Wade, April 2021
U.S. Consumer Confidence Up Sharply Again in April, The Conference Board, April 27, 2021