President Biden blamed the delta variant of the coronavirus for the small number of jobs created in August, but the real culprit could be the shortage of people willing to work.
The warm report raised questions about whether the U.S. recovery has slowed and when the Federal Reserve is finally beginning to squander the economy on its easy monetary strategy.
At first glance, the delta variant seemed to be the culprit. After all, virus-sensitive leisure and hospitality companies added zero new jobs in August. These companies had increased employment by an average of 364,000 per month over the previous four months.
See: MarketWatch Economic Calendar
According to the thought, hotels, restaurants, theaters and other service companies reduce hiring as delta cases increased and customers were left out. Other evidence supporting this argument: decreased flight, hotel reservations, and restaurant reservations.
“There’s no doubt that the delta variant is why today’s employment report isn’t stronger,” Biden said Friday at the White House.
However, other clues suggest that the virus was a minor factor.
Think of a couple of ISM surveys of senior executives from America’s largest companies. Few cited the delta directly for a business slowdown in August. Instead, they blamed the persistent shortage of labor and supplies.
That is, they have a lot of demand and orders more than enough to keep the economy humming. What they can’t get enough of are workers or materials to produce as much as they are able to sell.
“We are hiring at record levels to cater to our restaurants, but turnover is high and many former employees continue to have prolonged unemployment or are not ready to return to work,” an executive told ISM.
Another has been added: “[It’s] it is becoming increasingly difficult to find qualified candidates to fill vacancies. “
Read: “People just don’t apply” – why the restaurant industry didn’t create new jobs last month
ISM business surveys are a “sign that the delta variant may not be affecting the economy as strongly as the disappointing gain in non-farm payrolls suggested,” said Paul Ashworth, chief economist at Capital Economics.
Here is another clue. Workers’ hourly wages rose again in August and wages have risen 4.3% over the past year, the largest increase since 2008 if the first days of the pandemic are excluded.
The pay rise clearly shows that companies continue to try to hire workers or pay more to existing employees so they don’t move to a better-paying job elsewhere. Americans have stopped smoking at record levels in search of other opportunities.
How can the United States have a labor shortage when job offers are high and millions of people are out of work?
The government said 8.4 million people were classified as unemployed in August. Another 5.7 million who do not work said they would like a job. They are more than 14 million potential workers.
Labor shortages are a big enigma for economists, but some of the pieces are well known.
On the one hand, millions of people continue to receive unemployment benefits that, in many cases, pay more than their former jobs. This is because the federal government is temporarily distributing extra money to the unemployed during the pandemic.
Other surveys show that several million people who were close to retirement age left the workforce during the pandemic. Many will probably not return.
Meanwhile, some unemployed Americans said they had enough money to have a good time or that they lived with a well-paid working spouse. Others still had to care for young children or were too scared of the virus to get back to work, although it was unclear how the two bosses were doing.
“The huge shortage of labor should have been a big warning sign that the lack of workers is holding back hiring and until supply increases, there are only so many people who can be hired,” said Joel Naroff of Naroff Economic Advisors.
When will the supply of workers increase?
Maybe already this month. The additional federal benefits expire Monday, though the Biden White House has told states it can continue to pay them through other stimulus programs.
If public schools reopened and remained open, this would also give more leeway to unemployed parents to look for work.
Some retirees could also rejoin the workforce, but probably only if companies abruptly raise wages.
The result is that the United States could suffer from a labor shortage for months or even longer. There are a lot of jobs, but there just aren’t enough people to take them on.
“There are abundant signs,” said chief economist Stephen Stanley of Amherst Pierpont Securities, “that the labor market remains stagnant.”