Job market disconnect raises concerns over the U.S. economy's strength
The gulf between the record number of job openings around the U.S. and the number of workers for those roles is forcing Wall Street to reassess the pace of the economic recovery.
Jobs were gutted during the COVID-19 pandemic and employment growth has been a closely watched gauge for investors. Increasing employment eventually results in increased consumer spending, which is the biggest driver of economic growth. Without the former, analysts have said, it will take longer than expected for the economy to operate at some semblance of a pre-pandemic normal.
"That time horizon keeps getting extended," said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management.
The Labor Department has reported that job openings reached 10.9 million in July, the most on record dating to 2000. Roughly 8.7 million people were considered unemployed during that same month, which is the biggest gap of its kind between available jobs and the unemployed since the Labor Department started keeping track of job openings in 2000.
And that figure may be an underestimate. Heidi Shierholz, policy director at the left-leaning Economic Policy Institute, recently told CBS MoneyWatch that the government's official number of unemployed people excludes the millions who are jobless but not actively searching for a job. The true count in July was over 13 million, she said.
The number of open jobs in July exceeded the number of people who are unemployed for the first time during the pandemic. Typically, the gap is much wider the other way, with more people unemployed than there are job openings.
Rising COVID-19 cases are one of the biggest culprits driving the jobs divide. People are hesitant to head back to work because of health concerns as the highly contagious Delta variant spreads, analysts have said. Many are also concerned about childcare as schools open for a new year with a high level of unpredictability because of the virus.
What are these jobs paying?
The divide between job openings and people taking those jobs has also prompted companies to raise wages and offer bonuses. Some economists say businesses just need to raise wages for workers to show up.
Indeed, many business owners have moved to lift their starting wage above $15 to do just that.
"There is no better way to attract someone to a job than to guarantee them that if they work 40 hours a week they won't be living in poverty," Michael Lastoria, co-founder and CEO of &Pizza, told CBS MoneyWatch in July.
&Pizza, a fast-growing chain with dozens of locations across the Northeast, offers workers health insurance, sick leave, paid time off for activism and other perks. But the key to finding qualified workers starts with offering a living wage, he said.
Worse than previous recessions
More than 22 million jobs were lost through March and April of 2020 when the pandemic prompted widespread business shutdowns. Roughly 16.8 million of those jobs have returned through July of 2021 in a seemingly swift recovery, but the employment crisis still remains more severe than the recessions of 1974, 1981, 1990 and 2001 when they were at their worst, according to Ross Mayfield, investment strategist at Baird.
"The developments in the labor market are among the more important in the world today," Mayfield said, in a note to investors. "A lagging recovery will keep the Federal Reserve on the sidelines, but also limit economic growth."
The Federal Reserve is also closely watching the recovery in the jobs market. The central bank has made it a priority to maintain its policy to keep interest rates low until it is satisfied with the jobs recovery. That has left investors torn between balancing the benefit of a sluggish jobs recovery that prolongs low interest rates with the damage to longer term growth if the economy continues to struggle to make a full recovery.
The inability to get back to some semblance of a full staff means that many companies, particularly in the services sector, can't take full advantage of increases in consumer demand. Hotels, for example, will have trouble meeting any increase in demand if they don't have the full staff to service paying guests.
"Lots of firms are coming out and we're starting to see some bearish forecasts," said Katie Nixon, chief investment officer at Northern Trust Wealth Management. "We're now seeing some strategists sort of take their foot off the accelerator."