WASHINGTON – The US economy is creating confusion and growing almost as fast as it is adding jobs.
“Things exploded — it was like a light switch,” said Kirby Mallon, president of Elmer Schultz Services, a family-owned Philadelphia firm that repairs and maintains kitchen equipment for restaurants and other customers. “The labor market is out of control right now. We literally can’t afford to hire technicians… We moved so fast, the supply chain just wasn’t ready for it.”
Economic forecasters, with little historical precedent to guide them through the aftermath of a global pandemic, are pondering questions they can’t answer with any confidence:
Does strong consumer spending indicate economic strength and resilience? Or is it temporarily supported by federal stimulus checks?
Was the April surge in consumer prices a temporary setback? Or an ominous sign of accelerating inflation?
Is two months of moderate job growth the result of too much of a good thing – employers wanting to hire more than they can? Or a sign that the labor market is not as strong as economists think?
In many ways, the news has been reason to cheer: The economy grew at a 6.4% annual pace from January to March. And in the current quarter, that momentum is thought to accelerate to about double digits.
Yet the full picture of the US economy is more nuanced. Here’s a closer look at five vital signs:
Employers added 559,000 jobs last month, on top of 2,78,000 in April. They would generally be seen as a fairly healthy number. Yet against a backdrop of record-high job openings and free-spending consumers, forecasters expected much higher hiring. Some economists had envisioned recovery from a pandemic recession fueling monthly job growth of 800,000, 900,000, even 1 million or more.
What does the deficiency indicate?
Economists primarily point to what they call a short-term mismatch: Companies are posting job openings faster than applicants. After all, many Americans are grappling with much of the turmoil at home – health problems related to COVID-19, child care in schools slowing again, the permanent disappearance of many jobs over the past 15 months Career uncertainty after leaving. And some people, earning federal and state jobless aid more than they did when they worked, are taking their time before finding another job.
Some say the labor shortage is nothing that cannot be solved the old fashioned way: by raising wages and providing more generous benefits and working conditions. In fact, that process appears to have begun: Average hourly wages rose solidly in April and May.
Consider Gina Schaefer, who has 13 Ace Hardware stores in Maryland, Virginia, and Washington, D.C., and who is increasingly staffing for spring and summer, when her sales are typically at a high level.
Schaefer has hired about 120 people since March, both seasonal workers and long-delayed replacements for those who left last year when COVID ravaged the economy. His company pays at least $15.50 an hour, to compete with the larger chains who now pay $15, and employees have health insurance, paid leave, sick leave after being on the job for about six months. Offers vacation and 401(k) plans.
“We firmly believe that there is no problem finding employees in better workplaces,” she said.
After months of staying at home, millions of consumers are out again, eager to spend more, their finances boosted by a $1,400 federal stimulus payment earlier this year. Among the affluent, the sharp rise in home and stock market equities has fueled their spending impulse.
Consumer confidence is high. And Americans ramped up their spending again in April, following a powerful gain in March fueled by a $1,400 stimulus check to most individuals.
That said, Rubila Farooqui, chief US economist for High Frequency Economics, sees signs of caution. Confidence and spending, though still healthy, tend to be low. And retail sales were flat in April after rising in March, suggesting that the positive impact of stimulus checks may have faded. Similar trends occurred late last year when the effects of earlier federal stimulus funds began to wear off.
Furthermore, the monthly survey of consumer confidence by the Conference Board found that expectations for the next six months actually fell in May.
“I’m not sure how this is going to proceed,” Farooqui says.
Financial markets were dealt an unwanted blow last month when the Labor Department reported that consumer prices were up 0.8% from March to April and 4.2% from 12 months earlier – the biggest year-on-year increase since 2008.
Some prominent critics, including former Treasury Secretary Larry Summers, have warned that President Joe Biden’s trillion-dollar federal stimulus funds risk igniting inflation and forcing the Federal Reserve to resort to hikes in interest rates, which could stymie economic recovery. can derail.
But Fed Chairman Jerome Powell and many economists say they think inflationary growth will prove short-lived. He says this primarily reflects temporary supply-chain constraints that have forced prices up but should ease over time. For now, however, shortages of wood, computer chips and other materials have contributed to inflationary pressures.
Mallon of Elmer Schultz Services in Philadelphia said the supply shortage in his industry is so severe that members of the Commercial Food Service Equipment Association trade group are sharing the list.
“I can go to a friend if he has a share in the stock,” he said. “In my 30 years of business, no, I’ve never seen anything like this.”
The housing market has served as a source of economic strength and resilience during the pandemic, fueled by ultra-low mortgage rates and the desire of many locked-down families to move into more spacious excavations to accommodate work-from-home needs. supported by will.
But with prices out of reach for many and the supply of homes for sale severely limited, the housing boom has recently shown signs of fatigue. Home construction fell 9.5% in April – a drop that economists attributed, at least in part, to builders postponing projects as home prices swelled due to accelerating costs for lumber and other supplies. have contributed.
In April, sales of new homes fell nearly 6%, and purchases of existing homes fell 2.7%. As long as the paucity of available homes keeps sale prices high, many buyers will continue to look outside.
US factories are thriving despite closed supply chains and labor shortages. The manufacturing index of the Supply Management Institute rose to 61.2 last month. Any reading above 50 indicates a rise, and the makers have been on a 12-month winning streak.
Half of purchasing managers surveyed by trade associations said they had trouble finding workers. Given the supply problems, it is unclear whether factories can maintain their steady production: ISM found that deliveries from suppliers were arriving at the slowest pace since 1974. Sixteen out of 18 industries reported slow deliveries.
AP Business Writers Christopher Ragber in Washington and Joyce M. Rosenberg contributed to this report.