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(Bloomberg) The pandemic brought about a historic shift in consumer demand, raising wages and reorganizing the U.S. workforce in a way that is unlikely to be reversed anytime soon.
Two years after the onset of covid-19, the labor market has adapted to reflect changes in expenditure, which is higher in goods and lower in services. Hiring has skyrocketed in the transportation and storage sectors, and payrolls in retail, which experienced some of the worst job losses in early 2020 when quarantines closed stores, are now higher than before the health crisis.
Meanwhile, the huge leisure and hospitality sector continues to have 1.5 million fewer jobs than at its pre-pandemic peak.
That is “the economics of staying at home, in a nutshell,” said Sarah House, senior economist at Wells Fargo & Co. And while spending patterns are likely to reverse over time, “we won't go back to the old way we spent, how we hired, overnight.”
The March jobs report, which will be released on Friday, is likely to show continuous improvement across the US labor market and will hopefully provide a relatively cleaner read compared to recent reports affected by omicron, comparative reviews and population adjustments.
Economists estimate that employers added about half a million jobs in the month as pandemic restrictions lifted. They also foresee an acceleration in wage increases and a decrease in labor force participation.
Data released Wednesday by ADP Research Institute showed a similar picture, with employment in US companies increasing by 455,000 in March, with widespread progress.
Employers in all industries across the country have increased wages to attract and retain workers amid near-record vacancies.
Higher prices
Rapid wage increases have put upward pressure on consumer prices. Bloomberg Economics estimates that inflation is representing an average household cost of $5,200 this year for the same goods and services purchased in 2021.
“Increasing wages is a great thing,” Federal Reserve Chairman Jerome Powell said earlier this month. “But the increases are at levels well above what would be consistent with 2% inflation.”
Data to be released on Thursday are expected to show that the Fed's preferred inflation measure rose by 6.4% in February compared to the previous year, the highest in four decades. The DOC report will also provide data on inflation-adjusted spending, which economists estimate fell 0.2% in February from the previous month.
Decades of high inflation, currently above wage increases, are increasing the financial incentive to work. About 17% of Americans cited inflation as the main problem facing the country, the highest number since 1985, according to a survey conducted in March by Gallup.
While rising wages are a factor that attracts workers to the labor market from the periphery, “inflation could be more of a push towards the labor force, as some of the households' financial positions just don't seem as strong in the face of nearly 8% inflation,” House said.
Greater labour force participation is expected to ultimately help slow the pace of increased compensation as labor supply approaches meeting business demand. Employers have been fighting over the same small group of available workers, giving many Americans the opportunity to seek higher wages or better working conditions in a different industry.
In addition, the problem has been exacerbated by fewer immigrant workers.
Looking ahead, the path to participation in the workforce is not clear. But Friday's report will provide insight into the underlying trend after the measure improved at the beginning of the year largely due to demographic adjustments.
Original Note:
U.S. Labor Reshuffle Has More Room to Run, Fueling Higher Wages
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