American investors and markets are worried about the threat of recession, rising interest rates and inflation and all three factors continue to drive policy and market thinking.
And yet each time someone worries out loud or makes a forecast, it’s the still-strong US labour market which offsets worries about a recession, seems impervious to the boost to interest rates and shows little evidence of contributing to inflation through a wage-price spiral.
But there are longer term factors that expose the increasing vulnerability of the labour market in the world’s biggest economy to the power of demographics.
The May jobs report overnight Friday was not expected to change the stance of the US Federal Reserve’s decision at its June meeting next week – it’s expected to take a breather from rate rises to see what happens to the economy which continues to show underlying resilience, especially the jobs market.
But the jobs data, along with the monthly figures on job vacancies will again underline the key weakness in the US economy – slowly, but surely it is running out of workers.
In fact, the jobs vacancy details for April, released this week, raise questions about the future shape and direction of the US jobs market and the economy.
The April job openings was stronger than expected with more than 10 million vacancies – up from 9.6 million the month before, which in turn was down from a 10 million plus figure in February.
The figure has been above 10 million for most of the past year. US unemployment in April was 5.7 million and the labour force was 166.7 million.
US unemployment remains stuck under 4% (a multi-decade low of 3.4% in April), despite all those rate rises from the Fed.
There is an explanation for this persistence high level of vacancies and near record low levels of unemployment – America doesn’t have enough workers.
The US work force is ageing and no longer growing at a pace to replace everybody who leaves via retirement, death, dropping out or emigration.
Many analysts worry the continuing high levels of job openings is pressuring the Fed to raise rates – it’s a concern but there is a slow, mounting pressure from the fact that the US economy is running out of new, younger workers and that means a host of questions about the future- from growth, from renewables, from electric vehicles, supermarkets, housing and even airlines and travel generally.
Since 2019, the proportion of retirees in the US population has risen from 18% to nearly 20%, according to research by the Federal Reserve Bank of New York.
That’s around 3.5 million fewer workers. and the trend will only worsen – the percentage of workers who are 55 or older is nearly 24%, up from only about 15% two decades ago.
The surge of retirements, along with a slowdown in immigration that began during the pandemic, are the primary factors behind the labour shortages that continue to bedevil some employers.
It’s a growing problem in such fields as construction, manufacturing, nursing and some professional industries like accounting.
America has a low union coverage – 10% (down from 20% in 1983) or so of the 166 million people employed are in unions. They are not a barrier to jobs growth, but America’s hysterical reaction to immigration and refugees is, and the culture war over this issue from the Republicans any some Democrats is stopping the replenishment of the US jobs market from the bottom.
The Associated Press has reported job shortages across all parts of the airline industry – from repair shops, engineers, pilots, cabin staff, call centres.
Building and construction faces shortages of all types of workers from skilled tradesmen like carpenters to labourers and to workers in plants producing the materials for the sector.
Oil and gas and mining are looking at a shortage of skilled workers. the health system (like in Australia) and aged care are looking at shortages.
Even though America has grand plans for new EV factories, battery plants, lithium mines and other processing facilities, the issue of finding enough workers to full these plants and keep them running has not been fully addressed – not without significant improvements in pay and conditions, and training.
It is a factor that could limit the transition to renewables and the electrification of the US economy, especially EVs.
Analysts say the current jobs market is a case of irrespective where interest rates are, many employers just need to replace people who have left, so they keep hiring, or they offer higher wages and benefits to people – some past retirement age, to remain employed.
The April job opening and leaving data (JOLTS) showed rising vacancies in retail trade; health care and social assistance; and transportation, warehousing and utilities.
Some 6.1 million people were hired into new jobs in the month, unchanged from March and no sign of any loss of jobs because of all those interest rate rises starting a year ago.
Even in accounting – the whitest of white-collar jobs, ageing and a shortage of manpower is looming. About three-quarters of accountants are nearing 60 and approaching retirement, according to data from the Association of International Certified Professional Accountants, as reported by AP.
Australia’s labour market has a similar shape, except for one important point. We have an ageing work force, almost as many job vacancies as we have unemployed – more than 430,000 of the former and about 528,000 of the latter.
But we have rising numbers of migrants that will start replenishing the labour market from the bottom (cheapest) with international students and full-time immigration.
That in turn will pressure the overloaded housing and rental markets, which is a separate problem, but one that could very well restrict Australian economic growth in coming years.
