WASHINGTON (Reuters) – Federal Reserve officials grappled on Tuesday with April’s surprisingly weak employment growth, maintaining faith in the U.S. economic rebound but acknowledging the pace of the jobs recovery may prove choppier than anticipated.
The United States added only 266,000 jobs last month, about a quarter of the gain penciled in by economists, including Fed officials themselves, in what had been anticipated would be the start of a steady run of strong job growth.
But the data has raised a broad set of questions about the complicated interplay among peoples’ decisions about working during the ongoing coronavirus pandemic, constraints like child care, the slowing pace of COVID-19 vaccinations, global supply bottlenecks for critical goods like semiconductors, and the enhanced federal unemployment benefits that may be encouraging some potential workers to stay home.
In contrast to the number of jobs created in April, job openings as of the end of March hit a record 8.1 million, narrowing the wedge with the roughly 9.8 million people still unemployed.
Graphic: Job openings to unemployed,
“What the data suggests, and what I hear anecdotally, is that labor demand and labor supply are both on the path to recovery but they are recovering at different paces and there may be friction,” Fed Governor Lael Brainard told the Society for Advancing Business Writing and Editing (SABEW).
“There are still concerns over contracting the virus, the need to take public transportation,” she said, while many parents are waiting for schools to reopen.
“I do expect to see good improvement on people wanting to go to work and able to work,” Brainard added. “We are just seeing it in fits and starts,” a fact she said validated the U.S. central bank’s “patient” promise to leave crisis-level interest rates and bond-buying in place until the recovery is more complete.
Speaking separately to Yahoo Finance, Cleveland Fed President Loretta Mester laid out similar arguments.
Both Brainard and Mester noted that much may hinge on larger numbers of Americans getting vaccinated – a potentially difficult ask given the hesitancy of some adults to get inoculated.
The April jobs report has touched off a wave of debate in Washington about where the recovery stands and whether the decision to extend a weekly $300 federal unemployment benefit until September is keeping people from accepting jobs, or whether the hiring difficulties reported by companies are just part of life in the aftermath of a pandemic.
“It is true that with the extension of the unemployment benefits people are in a financial position so that they can make those hard choices, about whether they feel comfortable reentering or not,” said Mester, adding that the benefits themselves are not causing the problem.
The pace of the labor market rebound has a direct bearing on how the Fed has said it intends to set monetary policy, with its pledge of patience in keeping loose policy intact potentially conflicting with an economy poised for its strongest growth in decades.
In particular, the Fed has said it would not change its current $120 billion in monthly purchases of government securities until there was “substantial further progress” in reaching maximum employment.
Slower job growth pushes that moment further into the future even as concerns increase about potentially rising inflation.
New consumer price data this week is expected to fuel the debate over whether the Fed is creating risks of its own by leaving loose monetary policy in place for too long.
Brainard, however, said she expected pressure for price increases to also ease over time, just as the difficulties in the labor market will be resolved.
“To the extent that supply chain congestion and other reopening frictions are transitory, they are unlikely to generate persistently higher inflation on their own,” Brainard said, noting that some of the very forces that might generate higher prices now – a surge in demand as people get back to normal activity, for example – won’t be repeated.
Government fiscal spending will also fade next year.
“Remaining patient through the transitory surge associated with reopening will help ensure that the underlying economic momentum that will be needed to reach our goals as some current tailwinds shift to headwinds is not curtailed by a premature tightening of financial conditions,” she said.
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