As some states hit record low unemployment, Fed faces tough adjustment -Breaking
© Reuters. FILE PHOTO – Green District is hiring staff ahead of opening. This was taken on June 5, 2021. REUTERS/Amira Karaoud/File photo
By Howard Schneider
WASHINGTON (Reuters] – Georgia’s unemployment rate was 3.4% in October which is a record setting figure for the state. Officials in southern America could in a significant sense consider that the COVID-19 economic pandemic has passed them by.
They realized that the unemployment rate was steadily falling and reached 3.1% in March. Businesses were struggling to find workers, so they increased wages and offered benefits in an effort to attract them. However, no relief came.
We have set new records for the total workforce, total work, and the lowest unemployment rate since 2000. And we’re a bigger state. The problem is not the largest that anyone has ever faced… This book can be thrown out,” Mark Butler, Georgia Commissioner of Labor stated. This is not a problem that people think it is. You can also have a worse economy. When orders go up and staff cannot be found, it is called a bad economy.
Federal data shows that the Georgian labor market imbalance is one of the greatest in the country. It points to difficult adjustments ahead, as people and businesses restructure for post-pandemic times.
Federal Reserve officials have identified the current national ratio at 1.9 jobs to every unemployed worker, as an important issue in their effort to reduce inflation. It is this mismatch that pushes wages and benefits higher, which in turn drives prices up.
However, in New York State and California, the ratio between unemployed and available jobs is close to 1 to 1, while some clusters in states such as the Southeast, Midwest, and West boast more than twice or triple the amount of jobs available.
Georgia’s ratio stood at 2.73-1 in February. This was the most recent month that federal estimates have been available for state-level job openings. The states that have the greatest imbalances are usually smaller or middle-sized, but they account for a large proportion of the nation’s excess job demand. If workers are required to move away, rightsizing may be slower or harder to achieve.
Some economists see the problem as the Fed’s blunt interest rate increases clashing with longer-term demographic and immigration trends, which are contributing to the shortage of workers. Georgia, along with 17 other states, beat their record-low unemployment rate in March. This may indicate that more hiring will be possible through April.
Friday will see the release by Labor Department of its April employment report. According to Reuters, economists estimate that firms created 400,000 new jobs in April. The unemployment rate dropped to 3.5% last month. This is a level which the Fed didn’t expect before the end of this year and one the U.S. has not sustained for very long.
The pressure to increase wages would be eased if the labor force is larger and more productive. However, it will also allow for a greater supply of goods or services that can counter inflation in the second direction.
Nela Richardson chief economist at ADP payroll processor, said that “the challenge for the Fed not only is inflation.” The problem is not inflation, but the absence of the tools that were used to moderate wage growth. Immigration. The supply of labor is under threat. There is a smaller workforce. It’s aging.”
The March number of job seekers and workers was 184,000 lower than the level before the pandemic. If the trend of growth in the past decade continues, the “missing” body count would be even higher.
On Tuesday, the Labor Department released data showing that there were a record 11.5million open positions in March. This is a disappointing development for Fed officials who are worried about inflation-fueled labor market imbalances.
On Tuesday, the Fed’s rate-setting panel met for two days. The Fed’s rate-setting committee will release a policy statement at 2 pm EDT (1800 GMT) Wednesday. This is followed by a news conference from Fed Chair Jerome Powell half an hour later.
The U.S. central bank is expected on Wednesday to raise its benchmark overnight interest rate by half a percentage point, a move that would follow on the heels of a quarter-percentage-point rate increase in March, and announce plans for reducing its nearly $9 trillion in assets.
Inflation is hard to manage and is exceeding the Fed’s goal of 2%. This has made rate increases a more frequent concern. This began as a sharp rise in prices for some notable goods, including used automobiles. But it has continued to grow with Fed officials citing labor costs as an unsustainable part of the puzzle.
There is a lot of uncertainty in the U.S. economy. This includes questions about why the government’s employment has dropped as in-person schools were closed and why it remains 3.5% less than before the outbreak.
Louise Sheiner (a former Fed economist and now policy director at the Hutchins Center on Fiscal and Monetary Policy) stated that there was ample money in between the nearly one trillion dollar federal pandemic payments to states and local governments and the unexpectedly high tax receipts.
However, governments might have been priced out of the wage hikes offered by private sector employers. They are reluctant to match the rates on the basis a one-time federal payment but could leave more jobs for the future.
It is a huge irony. Sheiner stated that after all the money, if you look at which sectors are holding back on terms of employment, then state and local government is big.
It will take some time to fill these and other positions. After the 2008-2009 recession and financial crisis, the U.S. labor force participation was unexpectedly elevated. Recessions bring about changes in the way people work and the technology needed to do different jobs. This can make it difficult to match workers with jobs.
The process may accelerate however, and Fed officials believe that the labor market can catch up with the U.S. central banking’s tightening of monetary policy.