WASHINGTON – The US economy causes confusion and whiplash almost as quickly as it creates jobs.
Barely more than a year after the coronavirus caused the worst economic slump and job loss, the recovery has been so unexpectedly fast that many companies are unable to fill jobs or raise enough supplies to meet a pent-up rush of customer demand.
“Things exploded – it was like a light switch,” said Kirby Mallon, president of Elmer Schultz Services, a Philadelphia family-owned company that repairs and services kitchen appliances for restaurants and other customers. “The job market is out of control. We literally can’t hire technicians … we got up so fast that the supply chain wasn’t prepared for it. ”
Economic forecasters, who have few historical precedents to guide them through the aftermath of a global pandemic, ponder questions they cannot answer with certainty:
Does robust consumer spending reflect economic strength and resilience? Or was it temporarily supported by federal economic controls?
Was an April consumer price hike a temporary slip up? Or an ominous sign of accelerating inflation?
Are two months of mediocre job growth the result of too much of a good thing – employers wanting to hire more than they can? Or an indication that the labor market is not as strong as economists think?
The news was cause for celebration in many ways: The economy grew from January to March at a glowing annual rate of 6.4 percent. And this pace is expected to accelerate to almost double digits in the current quarter.
The full portrait of the US economy, however, is a little more nuanced. Here’s a closer look at five vital signs:
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Employers added 559,000 jobs last month, on top of the 278,000 in April. These would normally be considered quite healthy numbers. Against the background of record high job vacancies and consumers eager to spend, the forecasters had expected many more hires. Some economists envisioned a recovery from the pandemic recession that would result in monthly employment growth of 800,000, 900,000, even 1 million or more.
What explains the deficiency?
Economists refer primarily to what they call a short-term mismatch: companies post job vacancies faster than applicants can react to them. After all, many Americans struggle with significant turmoil at home – health problems related to COVID-19, problems with childcare at schools that are slowly reopening, career insecurity after many jobs have permanently disappeared in the past 15 months. And some people who earn more from federal and state unemployment benefits than they did when they were there, take their time before they go to work.
Some say labor shortages are not something that cannot be resolved the old-fashioned way: through wage increases and more generous benefits and working conditions. Indeed, the process seems to have started: Average hourly wages rose solidly in April and May.
Think Gina Schaefer, who owns 13 Ace hardware stores in Maryland, Virginia and Washington, DC and who hired quickly for the spring and summer when her sales typically peaked.
Schaefer has hired nearly 120 employees since March, both seasonal workers and long-delayed replacements for people who left last year when COVID devastated the economy. Their company pays at least $ 15.50 an hour to compete with larger chains that are now paying $ 15, and offers health insurance, paid vacation, sick leave, and a 401 (k) plan after employees are about six Months of service.
“We strongly believe that better workplaces have no problem finding employees,” she said.
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After being cooped up at home for months, millions of consumers have returned in a spirit of optimism and spending. Their finances were boosted earlier this year by a federal stimulus payment of $ 1,400. Among the affluent, the strong gains in home and stock market stocks have further fueled their spending drive.
Consumer confidence is high. And Americans stepped up their spending again in April after a sharp spike in March economic checks of $ 1,400 for most individuals.
However, Rubeela Farooqi, US chief economist at High Frequency Economics, sees warning signs. Confidence and spending, while still healthy, have trended downwards. And retail sales were flat in April after rising in March, suggesting that the positive effect of the economic controls may have worn off. Similar trends emerged late last year after the impact of previous federal subsidies wore off.
In addition, a monthly Conference Board poll on consumer confidence found that expectations for the next six months actually fell in May.
“I’m not sure how this will play out,” says Farooqi.
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Financial markets took an unwanted shock last month when the Labor Department reported consumer prices rose 0.8 percent from March to April and 4.2 percent from 12 months earlier – the largest year-on-year increase since 2008.
Some leading critics, including former Treasury Secretary Larry Summers, have warned that President Joe Biden’s trillion dollars in stimulus money could fuel inflation and force the Federal Reserve to hike interest rates, which could stall the economic recovery.
But Fed Chairman Jerome Powell and many economists assume that the surge in inflation will be short-lived. They say this mostly reflects temporary supply chain bottlenecks that have pushed prices up but should subside over time. For now, however, the shortage of lumber, computer chips and other materials has contributed to inflationary pressures.
Mallon of Elmer Schultz Services in Philadelphia said the supply bottlenecks in his industry are so severe that members of the Commercial Food Service Equipment Association are sharing their inventory.
“I can go to a friend’s house if they have a part in stock,” he said. “In my 30 years in business, no, I’ve never seen anything like it.”
The housing market has served as a source of economic strength and resilience during the pandemic, aided by extremely low mortgage rates and the desire of many incarcerated families to move to more spacious digs to meet the needs of working from home.
But with prices soaring beyond their reach and with the availability of apartments for sale severely limited, the recent real estate boom has shown signs of weariness. Housing construction slumped 9.5 percent in April – a decline that economists attributed, at least in part, to home builders postponing projects due to rising costs for lumber and other supplies that have contributed to soaring home prices.
In April, new home sales fell nearly 6 percent and existing home purchases fell 2.7 percent. Many prospective buyers will remain on the outside as long as the lack of available housing keeps selling prices high.
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US factories thrive despite clogged supply chains and labor shortages. The Institute for Supply Management’s manufacturing index rose to 61.2 last month. Any reading above 50 signals growth, and manufacturers have been on a winning streak for 12 months.
Half of the purchasing managers surveyed by the professional association stated that they had had problems finding workers. Given the delivery problems, it is unclear whether the factories can maintain steady production: the ISM found that deliveries from suppliers were as slow as they have been since 1974. Sixteen out of 18 industries reported slower deliveries.
By Associated Press Business Writer Paul Wiseman. Contributors to this report were AP business writers Christopher Rugaber in Washington and Joyce M. Rosenberg in New York.