Global Courant 2023-05-11 10:21:24
Now signs will be displayed for restaurants in Rehoboth Beach, Delaware on March 19, 2022.
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Major economies have been battling labor shortages and heightened inflationary pressures since the onset of Covid-19, but economists expect this trend to finally ease this year.
Central banks around the world have aggressively tightened monetary policy for more than a year in an effort to contain skyrocketing inflation, but labor markets generally remained stubbornly tight.
Last week’s US jobs report showed that this remained the case in April, despite the recent turmoil in the banking sector and a slowing economy. Nonfarm payrolls rose by 253,000 this month, while the unemployment rate was at its lowest since 1969.
This tightness is mirrored in many advanced economies, and as core inflation also remains stubborn, economists are divided on when the Federal Reserve, the European Central Bank and the Bank of England will be able to pause and eventually cut interest rates. prices.
In the US, the Federal Reserve signaled last week that rate hikes might be paused, but markets remain uncertain whether the central bank will have to raise rates further in light of incoming data. The number of vacancies in March fell to the lowest level in almost two years
Last week, however, Moody’s forecast that the gap between labor supply and demand is expected to narrow this year in the advanced economies of the G-20 (Group of Twenty), easing labor market tightness as growth slows with the lagged effect of tighter financial conditions and cyclical demand for workers falling.
By mid-2022, the supply chain shortages that emerged in the aftermath of the pandemic turned into a glut of goods and materials for retailers and manufacturers as bottlenecks and a rebound in demand moderated.
Jeffrey Kleintop, chief global investment strategist at Charles Schwab, expects a similar turnaround in the labor market later in 2023, once the lagged effect of monetary policy tightening takes effect.
“Corporate earnings calls and shareholder presentations reveal a rising trend of mentions of job cuts (including phrases such as ‘downsizing’, ‘layoffs’, ‘staff cuts’, ’employees on leave’, ‘downsizing’ and ‘staff cuts’) together. with a decreasing trend in mentions of labor shortages (including expressions such as ‘labour shortages’, ‘inability to hire’, ‘difficulty recruiting’, ‘difficulty filling vacancies’ and ‘driver shortages’),” Kleintop stressed in a report Friday.
Data collected by Charles Schwab showed that in US corporate earnings since the start of this year, for the first time since mid-2021, expressions related to workforce cuts have begun to exceed those related to labor shortages.
‘From shortages to surpluses’
Kleintop also cited tighter credit conditions as contributing to weaker job prospects, pointing to a “clear and intuitive guiding relationship between banks’ lending standards and job growth”.
“The magnitude of the recent tightening of bank lending standards in the US and Europe points to a shift from job growth to job contraction in the coming quarters,” he said.
Declining demand for labor will be the main driver for further reversals over the next three to four quarters, Moody’s suggested Friday, while rising borrowing costs for businesses and households over the course of the year will reduce hiring intensity, consumer spending and economic activity.
Modest labor supply growth will also reduce shortages, driven by higher participation rates among younger worker cohorts and easing pandemic frictions, Moody’s strategists said.
Labor force participation rates for under-65 age cohorts have returned to (or in some cases exceeded) pre-pandemic levels in most G20 AEs (advanced economies), indicating that the past two years of strong wage growth have been largely successful in luring workers back into the workforce.”
Job growth in the services sector was a key factor behind labor market resilience in the face of global economic weakness over the past year, driven by a post-pandemic surge in demand.
Charles Schwab’s Kleintop stressed that the gap between the PMI (Purchasing Managers’ Index) of the services sector and the manufacturing sector, which is in recession, is the largest ever recorded.
“The record-wide gap between growth in services and weakness in manufacturing points to an imbalance that may need to be corrected,” he said.
“Perhaps it will be the strength of the services economy – and therefore employment – as the lagged impact of bank tightening begins to take hold.”
This weakening of the labor market picture may help central banks, which have long expressed concerns about the possibility of tight labor markets and stronger wage growth, to entrench inflation in their respective economies.
It could allow policymakers to take a more dovish stance, Kleintop suggested, which would boost stocks.
However, the shift from shortages to surpluses in the labor market may not be fast enough to substantially lower core inflation by the end of the year, leaving central banks free to declare victory over inflation drivers and aggressively lower rates. he added.
Risk of resurfacing
While agreeing that labor shortages in advanced economies will ease this year, Moody’s strategists suggested it could resurface without meaningful policy action to increase the size and productivity of the workforce as the aging workforce continues to shrink.
The rating agency said aging will lead to a sharp reduction in available labor supply for most advanced economies, particularly South Korea, Germany and the US.
Based on estimates of the labor supply lost to aging since the Covid pandemic, Moody’s believes the downturn to come will be “significant”.
In the US, Moody’s estimates that aging accounts for nearly 70% of the 0.8 percentage point decline in the employment rate from the last quarter of 2019 to date, representing a loss of approximately 1.4 million workers due to aging.
“This ‘demographic pressure’ on the participation rate has been greatest in the euro area, Germany and Canada. However, peculiar factors and policies in France, Australia, Korea, the euro area and Japan have been able to offset their recent demographic pressure,” said the strategists of Moody’s.
Compensating factors they identified from data since the turn of the century included gains in women’s labor force participation, migration, and advances in technology and education.
“As a result, policies that encourage immigration, female labor force participation or the adoption of new, productivity-enhancing technologies will determine the magnitude and persistence of labor supply challenges. Without them, we would expect challenges to emerge in the next company regarding the hiring of employees.” cycle,” argue Moody’s strategists.
