Rapid Job Growth Likely In The Coming Months, Despite Employers Facing Labor Shortages
Job growth is expected to remain strong in the coming months, although the number of available workers to fill the positions is lacking. The Conference Board’s Employment Trends Index significantly increased in May, after an increase in April. The index reached 107.35 in May, up from 104.31 in the previous month. The index is currently up 39.4 percent from a year ago.
“In the past three months, the Employment Trends Index grew much faster than any other three-month period in the history of the index prior to the pandemic. This marked acceleration suggests historically strong job growth in the coming months,” says Gad Levanon, head of The Conference Board Labor Markets Institute. “Past index data had signaled growing labor shortages, but the most recent data strongly reinforces this trend. Indeed, 48 percent of firms reported an inability to fill positions in May’s NFIB survey—an all-time record. Job shortages are likely to be more acute in those states that opened first, less in those that still have restrictions.”
Levanon adds, “The labor shortages are causing wage growth to surge. Average hourly earnings in the past two months rose by 7.4 percent (annual rate), which is two to three times the typical growth rate in recent decades. If the current rate of wage growth continues for several more months, it could significantly impact inflation and monetary policy. Toward the end of 2021, labor shortages are likely to ease as some of the labor supply constraints moderate.”
The Conference Board’s ETI aggregates eight labor market indicators, each of which has proven accurate in its own area. Aggregating individual indicators into a composite index filters out “noise” to show underlying trends more clearly. May’s increase was driven by positive contributions from all eight components.
The U.S. added 559,000 jobs in May, according to the U.S. Bureau of Labor Statistics, pushing the unemployment rate down to 5.8 percent. While the jobs figure was below expectations, it highlights a labor demand and supply mismatch that is driving firms to increase wages to find workers.
“This month’s jobs report shows that more jobs are being added to the economy as the economy reopens,” says Frank Steemers, senior economist at The Conference Board. “However, there are still many job openings that employers are struggling to fill, most notably in leisure and hospitality and other in-person services. This appears to be difficult, as much rehiring needs to happen at the same time instead of being spread across the year as is the case during normal years. Finding qualified workers and filling open positions take time, and rising wages are only partly helping to speed up this process.”
Steemers adds, “While the demand for workers is high, supply continues to be constrained due to pandemic-related circumstances such as childcare challenges, elevated unemployment benefits (which has increased bargaining power for some unemployed workers), and the fear of contracting COVID-19. Labor force participation is still well below pre-pandemic rates and has not yet picked up meaningfully since the summer. This means that labor shortages, especially for in-person services, could remain for the better part of 2021.”
“Since current labor shortages are mostly temporary and a result of the rapid reopening of the economy, towards the end of 2021, we should experience loosening labor markets. However, after a pause in 2022, tight labor markets may return as the unemployment rate will be lower, and a shrinking U.S. working-age population means we will reach tight labor markets sooner than in previous decades.”