by Blaine Dickason
Senior Vice President
Federal Reserve Chair Jerome Powell’s speech at last month’s Jackson Hole Economic Symposium focused market participants on the labor market ‘speedometer’ that will determine how much and for how long our central bank will maintain its current stimulus measures. The Fed has set a high bar for achieving ‘substantial further progress’ towards full employment. Immediately pre-COVID, the U.S. unemployment rate had been a historically low 3.5%. After surging to 14.8% last spring, the most recent August reading of 5.2% represents a significant but still incomplete recovery. Throughout this summer, we have highlighted September as a likely inflection point in the jobs recovery. This past week, several notable catalysts occurred that should help to resolve the current dislocations and shortages in the labor market.
In June and July, 25 states terminated the $300-per-week top-up benefit for unemployment insurance with most of those states also ending additional federal programs that extended the longevity of those benefits. For the remaining 25 states, those additional benefits expired last week. Because many of the pandemic-related job losses have been concentrated in lower wage industries, those benefits had provided many of the unemployed with a strong and rational reason to not seek new employment; in many cases, total benefit payments were greater than their prior wages.
The Goldman Sachs chart below indicates the number of unemployed people continuing to submit jobless claims are dropping more rapidly in states that rescinded benefits earlier, as that potential labor pool has a greater incentive to rejoin the workforce. As for the 25 states that maintained benefits through their expiration, they contained nearly three-quarters of the recipients. These states will likely see a similar labor supply increase in the coming months, thereby easing worker shortages and providing some equilibrium to what has been a very tight job market.
Source: Department of Labor, Goldman Sachs Global Investment Research
On Tuesday, the U.S. Labor Department released their monthly Job Openings and Labor Turnover Survey (JOLTS), reporting another record high of nearly 11 million available positions. This measure has set multiple records already this year as the sharp snapback in economic activity has left many businesses short-staffed. In a rare occurrence, the total number of job openings now significantly exceeds the total number of unemployed! In addition, the weekly measure of new jobless claims reported yesterday fell to a new pandemic low, a positive sign that the Delta variant has not triggered fresh rounds of layoffs.
The current demand for labor is quite strong. Many hurdles and challenges to achieving a full labor market recovery, including childcare provision, vaccination rates and enhanced unemployment benefits, have pressured the supply of workers available to meet this demand. Both the demand and supply of labor now appear aligned for a final leg in the jobs recovery. Resolving these dislocations in the labor market will help further our overall economic recovery as we continue along our uneven path on a hopeful return to normal.
Takeaways ... 20 Years Later
This weekend, Americans will observe the 20th anniversary of the terrorist attacks of 9/11, one of the worst days in the history of this country. Planes crashing into the World Trade Center struck at the heart of Wall Street, although it was the first responders saving lives and running toward danger who experienced some of the greatest loss. As that morning unfolded, the entire world witnessed this tragedy in real time. Those images, along with the heroic and heartbreaking stories subsequently shared, will remind us to never forget September 11, 2001.