The US economy is being held back by a lack of willing workers, according to ING.
Reacting to today’s surprisingly insipid non-farm payrolls numbers for November, the Dutch finance house’s chief international economist, James Knightley, said the labour supply “simply isn't returning quickly enough and for companies desperate to hire this is a huge problem”.
The November jobs report caught economists on the hop, with forecasts of 550,000 additions proving far too optimistic, as a mere 210,000 jobs were added.
“Goods-producing jobs rose a solid 60,000, but there was a major slowdown in the service sector with just 175,000 private service sector jobs added. Leisure and hospitality is simply not rebounding as we would have liked to see (+23,000) while government employment fell for the fourth month in a row. Retail also saw a 20,000 fall. This means that US employment is still 3.9mn below pre-Covid levels,” Knightley calculated.
On the plus side, October’s rise was revised upwards to 546,000 from 531,000 and the unemployment rate fell to 4.2% in November from 4.6% in October, which was comfortably better than the 4.5% economists had been expecting.
It seems counter-intuitive that the number of jobs should rise by less than expected and yet the unemployment rate falls faster than predicted but that can be explained – sort of – by the fact that two different constituencies are being measured: employers (providing the data on jobs added) and householders (providing the data on employment).
“In our view the key problem for the economy, as indicated by today’s payrolls number, is that demand for workers continues to outstrip supply by a wide margin. There are more than 10 million job vacancies in the US with the National Federation of Independent Businesses (NFIB) yesterday reporting that a net +48% of small businesses have job openings they can’t fill. There is absolutely no problem with demand. The issue is the lack of workers to hire with the labour participation rate remaining woefully low at 61.8%,” Knightley said.
According to the ING economist’s calculations, nearly 40% of people of working age are not engaged in the labour market “in any meaningful way”.
Robert Alster, the chief investment officer of Close Brothers Asset Management, said the jobs report was a mixed bag but overall, “things continue to look better for the US labour market”/
“Employment is rising and low participation continues to support wages. This, coupled with pandemic savings, is boosting consumers’ ability to spend, despite high prices,” Alster said.
The National Federation of Independent Businesses (NFIB) reported yesterday that a net +48% of small businesses have vacancies they can’t fill (the +48% figure is arrived at by subtracting the percentage of businesses with no vacancies from the percentage of those with long-term vacancies).
Meanwhile, the NFIB reported a net +44% of survey respondents having raised worker compensation in the past three months to try to attract staff. A net +32% expect to have to raise pay further in the coming three months, Knightley reported.
“Both of these are at all-time highs for a report that started in 1975!” Knightley exclaimed.
It looks like the long period, stretching all the way back to President Reagan’s time in office, of US employers having workers where they want them (nose closely adjacent to the grindstone) may be ending.