Does The U.S. Have A Labor Shortage?
Near record unemployment rates and an increase in help wanted signs would suggest that there is a labor shortage. If this is the case, we should be seeing the signs of a tight labor market, with wage growth and inflationary pressures. Surprisingly, wage growth has been modest and inflation has been relatively benign.
What is happening? Economists are starting to re-evaluate how the labor market is measured and whether the official unemployment rate is adequately gauging the health of the job market. Perhaps the most productive place to look for explanations lies in the labor force participation data, which currently stands at approximately 63%.
Logic suggests that, the absence of the historical overall economic reaction to near record low unemployment, may be attributable to greater than expected flexibility in the labor force participation data. In other words, there may be more individuals who, currently on the sidelines, and not classified as unemployed, might be willing to join the work force if the terms are attractive.
Investors should note that if the U.S. economy can support increased employment, without triggering inflationary pressures, the environment for positive investment returns may be enhanced.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA