James Knightley, Chief International Economist at ING, notes that the U.S. jobs growth disappointed again in May, but this is not a demand issue.
"US payrolls growth has disappointed again in May with a net 559,000 jobs created versus expectations of 675,000. The range of expectations was wide at 335,000 to 1 million, but we had suspected it would come in on the softer side due to a lack of labour supply rather than any drop-off in the demand for workers."
"While the lost jobs continue to be clawed back in aggregate there are still 7.63mn fewer people in work than before the pandemic started. Federal Reserve officials will likely use this to justify their dovish message on eventual interest rate rises. That said, we don’t think this means the Fed is right to say there is no need to raise interest rates until 2024."
"The softness in job creation is supply related, not demand related and with wage rates picking up more than expected (0.5% month-on-month versus 0.2% consensus), there is growing evidence that the labour market will add to medium-term inflation pressures."
"The slowdown in both the manufacturing and service sector ISM employment components was pinned on companies struggling to find suitable workers and this message was reinforced by data from the National Federation of Independent Businesses overnight. It reported the fourth consecutive new record high for the proportion of small businesses that have vacancies that they couldn’t fill."
"The lack of supply of workers was also acknowledged in this week’s Federal Reserve Beige Book where “a growing number of firms offered signing bonuses and increased starting wages to attract and retain workers”."
"The problem was highlighted by the labour participation rate dropping back to 61.6% in May. The obvious reasons are ongoing child-care issues surrounding home schooling, which is forcing many parents to stay at home rather than go out to work. Secondly, there is also still some concern from some workers about returning given the pandemic isn’t over. Thirdly, some older workers who lost their jobs may simply have decided to retire early. Finally, there is the debate over the impact from extended and uprated unemployment benefits. They may have weakened the financial incentive of going out to work, particularly for low paid roles, especially when you factor in associated costs of commuting and any childcare."
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