A full jobs recovery is 'only a question of time'

·Head of News

Wed, Jun 30, 2021, 3:03 AM3 min read

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Wednesday, June 30, 2021

...But labor market frictions continue popping up everywhere

The last few months of jobs data have been disappointing.

As we came into the summer of 2021, economists and policymakers were talking up the prospects for several months of job gains eclipsing 1,000,000. Over the last three months, the economy has added back about half that number each month.

Wall Street economists expect the June jobs report on Friday to show some 700,000 jobs were added back to the economy. In a note to clients published Tuesday, Lydia Boussour, senior economist at Oxford Economics, forecasts nonfarm payrolls growing by 826,000 "as businesses in services industries continue to staff their increasingly busy operations." Also, Boussour expects that about half the month's gains will come from the beleaguered leisure and hospitality sector.

"It's only a question of time before hiring catches up with buoyant labor demand," Boussour added. "The economy is set for a jobs boom in the coming months as labor supply constraints gradually dissipate. We foresee a couple of +1 million monthly job gains this summer, which should allow the economy to recoup over 8 million jobs this year, with the unemployment rate falling to 4.3% by year-end."

But frictions within the labor market are undeniable. And the imbalance between labor supply, demand, and new requirements facing employers to keep workers on the job have made this recovery a messy process. And signs aren't exactly encouraging that this mess is getting notably closer to ending.

On Tuesday, CNBC reported that Southwest Airlines (LUV) would increase overtime pay from July 1-7, and offer double pay to flight attendants during the same period, to avoid delays and cancellations over the holiday weekend. A development that comes just a few months after the company received government money to explicitly avoid furloughing staff. Staff the company now cannot get on the schedule fast enough as demand exceeds expectations.

A company that was paid to keep staff employed is now finding trouble getting workers to cover a busy weekend, and it's the perfect story for the current labor market. The situation is worse for employers trying to recruit from outside their firms.

"Our sales would climb significantly if we could find workers," one manufacturing executive told the Dallas Fed in its latest manufacturing activity survey. "Our backlog is now six weeks; in January it was five days. Starting pay for untrained workers is up to $15 per hour with a signing bonus of $500. But we cannot even get applicants."

This executive goes on to cite federal unemployment benefits as hampering their ability to recruit workers; effective last Saturday, Texas ended its participation in expanded unemployment programs. The rollback of those provisions — which will expire nationwide in September — is a potential catalyst for normalizing the supply/demand imbalance in the labor market.

"In the coming months as schools reopen, virus fear recedes, and supplemental benefits expire, we expect the recovery in the labor force participation rate will accelerate," Oxford's Boussour noted.

But like almost everything else in this recovery, the expiration of these benefits themselves are an uneven, fits-and-starts process. That leaves investors to wonder whether June will market the start of a new phase for the labor market rebound, or serve as yet another month of waiting for the turn.

By Myles Udland, reporter and anchor for Yahoo Finance Live. Follow him at @MylesUdland