On the one hand, this shows how well the recovery is still going. On the other, it serves as a reminder that a slowdown will have to come eventually as the economy returns to normal.
“I do expect the pace of hiring to slow, but I do think it’s important to say that it’s because of supply constraints,” said Simona Mocuta, chief economist at State Street Global Advisors.
Meanwhile, the number of Americans filing for benefits for at least two weeks in a row fell to 1.3 million in the week ended March 19, adjusted for seasonality, the lowest level since December 1969.
In February, the nation had 11.3 million jobs to fill, but had only hired 6.7 million people. Economists believe it will take time for this mismatch between labor demand and supply to abate. In the meantime, wages are on the rise as businesses compete to attract and hire staff.
In terms of economic data, this means some indicators that were watched closely during the earlier phase of the recovery will move into the background.
“I’m almost at a point where I think the jobs numbers themselves become secondary,” Mocuta said.
Instead, data on labor force participation and wages will be much more key.
“To me it’s about the supply of labor and the price of labor. I know what the demand for labor is,” Mocuta added.
As of February, the labor force participation rate stood at 62.3%, still below the pre-pandemic level of 63.4%. That means there are still workers on the sidelines who left the labor force during the pandemic. Reasons to do so included child care, worries about contracting the coronavirus, and early retirements among older workers. Meanwhile, wages increased little during February but rose more than 5% over the preceding 12 months.
Mocuta hopes that wage inflation will moderate this year, though it is hard to see how else the worker demand and supply imbalance can be addressed.
“A good reason to get off of the sidelines and back to work is due to rising prices, and not just at the grocery store and at the gas pumps,” said BMO senior economist Jennifer Lee.
The bottom line is that businesses are passing their higher employment costs on to consumers as well, but there’s a limit to how much people will be willing and able to absorb.
“It’s very hard to pinpoint when the inflection points happen. You can really only tell in retrospect,” Mocuta said. But she believes the conditions are ripe for it.