As restaurants struggle to find workers, some are finding creative ways to fill openings

A waitress wearing a face mask and serving a customer some coffee at his table in a restaurant.
  • Leisure and hospitality is down 2.2 million jobs from February 2020 levels.
  • One restaurant owner said the people they typically get to fill positions are finding work elsewhere.
  • Signing bonuses and pay increases may not be enough of an incentive to attract workers.
  • See more stories on Insider’s business page.

Just like many restaurants across the country, Sugapeach Chicken & Fish Fry in Iowa is having a hard time finding workers.

Chad Simmons, who owns the restaurant with his wife Carol Cater-Simmons, said the pandemic has been a difficult time for them. They did grow their business during the pandemic, but at the same time their expenses grew. The restaurant is looking to hire now that customers are coming back, but they’ve had few applicants.

“We still have not been able to be successful at attracting people. The primary people we would normally attract are finding opportunities in other areas,” Simmons said, noting that he and his wife typically look for more experienced workers. He said these workers are leaving the industry, finding jobs with higher pay, or aren’t looking for work right now because of unemployment benefits.

Restaurants like Simmons’ are struggling to find workers. According to one survey, 74% of independent restaurant owners said they’re having a harder time filling positions than before the pandemic. Teens on break from school are helping fill openings over the summer, but those workers are only temporary. Wages have increased in the industry as owners try to attract workers, but some restaurants have had to cut operating hours because of staffing issues. Even as the industry recovers from pandemic jobs losses, the leisure and hospitality industry still has a long way to go: employment is down by 2.2 million jobs from February 2020.

Restaurant owners are coming up with creative solutions to the staffing shortage

Angel Li knows how challenging it can be to find workers right now. Her sister owns a restaurant in Connecticut, which has three openings. Li, who’s a partner at accounting firm Fiondella, Milone & Lasaracina, has had to help out on a few holidays. Some of Li’s clients are restaurants, and she said that she has seen others like her sister struggle to hire and have had to find “creative solutions.”

“Currently, there is no backup plan for if someone misses a shift or needs to quarantine,” Li said in an email. “My sister is the only backup plan right now. Filling the open positions she has would often be the difference between her working until 2 am prepping for the next day, or going home at 9 pm.”

Simmons has hired high schoolers as part of a program called Scholars Making Dollars, which works with local Alpha Phi Alpha chapter in Iowa City. High schoolers get mentorship provided by the chapter and part-time work experience through the restaurant. Sugapeach also asked a a former employee who now works at Amazon to help clean for a few hours a week for pay and a meal.

“We’ve had to try to really get creative because customers don’t care about your problems,” Simmons said. “They want their food and they want it in a timely manner.”

For Li’s sister, that means hiring workers from out of state, usually New York. Her sister picks these workers up on Thursday and drives them back on Monday, providing them with a house while they’re in Connecticut.

“A lot more restaurants closed in New York than in Connecticut, so there actually are talented people in all types of positions looking for jobs there and some of them are happy to take a position in Connecticut that comes with a place to live,” Li told Insider in an email.

Workers aren’t going to come back just for bonuses and pay bumps

The quit rate in restaurants and hotels was 5.3% in May 2021, higher than the pre-pandemic rate. Some hospitality workers don’t plan on coming back to the industry, according to one survey by Joblist, even as some employers are offering bonuses. Bonuses may not be enough as an incentive, Saru Jayaraman, president of One Fair Wage, told NPR.

“It’s not enough to have a worker who’s decided, I’m going to walk away and change my life, to then flip back for a temporary boost,” Jayaraman told NPR.

Li said she knows one cafe she advises that has increased pay by about $3 per hour to retain employees.

“Even with the strong retention because of the higher wages, the owner is short-handed and hasn’t taken a day off since early 2020,” Li said.

Daniel Zhao, senior economist at Glassdoor, told Insider that signing bonuses and increased wages are helpful incentives, but “ultimately people evaluate job opportunities holistically.” He said workers think about things like pay, company culture, and benefits offered.

“For many of these employers, it’s going to be difficult to raise wages by a dollar or two an hour and expect that to beat out another job, which might have better working conditions and better long-term career opportunities. ” Zhao said.

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The average person earning minimum wage has to work 79 hours a week to afford a one-bedroom apartment

McDonald's fight for $15 wage
An employee of McDonald’s protests outside a branch restaurant for a raise in their minimum wage to $15 an hour, in Fort Lauderdale on May 19, 2021.

  • Rent is unaffordable for the average minimum-wage earner in the US, according to a recent report.
  • Though the Fight for $15 has gained traction, $15 an hour often isn’t enough to afford housing.
  • Low-wage workers will continue to struggle after the pandemic ends.

For the nation’s minimum-wage workers, even working two full-time jobs sometimes isn’t enough to afford rent, according to a new report from the National Low Income Housing Coalition.

The average minimum-wage worker would have to work 79 hours a week to afford a modest one-bedroom rental and 97 hours a week to afford a modest two-bedroom rental, hours that would be difficult for a single person and nearly impossible for single parents.

“People who work 97 hours per week and need 8 hours per day of sleep have around 2 hours per day left over for everything else – commuting, cooking, cleaning, self-care, caring for children and family, and serving their community,” the report stated. “Even for a one-bedroom rental, it is unreasonable to expect individuals to work 79 hours per week to afford their housing. For people who can work, one full-time job should be enough.”

The federal minimum wage is $7.25 an hour and hasn’t increased in over a decade. Though the Fight for $15 – a nationwide campaign to raise the minimum wage – has gained momentum with some major companies and states instituting $15 minimum wages, even a $15 hourly wage isn’t enough to lead a comfortable life.

According to the report, an individual would have to earn $20.40 an hour to afford the average modestly priced one-bedroom rental and $24.90 for a two-bedroom apartment, without spending more than 30% of their income on housing.

“Stable, affordable housing is a prerequisite for basic well-being, and no family should live in danger of losing their home,” the report stated.

In more expensive housing markets, workers must earn even more to afford rent. In New York state, where the average housing wage is $34.03 an hour, an Amazon employee making $19.30 an hour in New York City has lived in her car since 2019 because she can’t find affordable permanent housing.

Although wages overall jumped during the pandemic as businesses struggled to fill open positions, salaries for people already in the workforce didn’t go up. Even pre-pandemic economic conditions were difficult for low-wage workers, and the report predicts that workers will struggle even more now to pay off debt accumulated during the pandemic.

“Even if economic recovery is robust and sustained, low-wage workers will continue to struggle.”

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The Fed is bummed out by all the supply and labor shortages, too

GettyImages 1229890667
Fed chair Jerome Powell is due to speak on Thursday

  • The US is recovering well, but supply constraints and worker shortages present obstacles, the Fed said.
  • Product shortages can provide “more lasting but likely still temporary upward pressure” on prices.
  • New technology and retirements could keep the labor market from returning to its pre-crisis norm, the Fed added.
  • See more stories on Insider’s business page.

Vaccination may be keeping COVID-19 at bay, but the pandemic’s fallout lives on in supply shortages and labor scarcity, the Federal Reserve said Friday.

March stimulus, vaccination, and the reversal of pandemic restrictions allowed businesses to reopen and unleashed a wave of consumer demand through the first half of the year, but these combined to make inflation the new specter looming over the US. Prices climbed at their fastest rate since 2008 in May, and much of this overshoot is linked to supply bottlenecks and the nationwide labor shortage, the Fed said in a new report.

“Shortages of material inputs and difficulties in hiring have held down activity in a number of industries,” the central bank said. Still, accommodative fiscal and monetary policy helped the US achieve “strong economic growth” through the first half of the year, the Fed added.

The Friday report sheds more light on just how high the Fed is willing to let inflation run before taking action. Recent measures of nationwide price growth are “in a range that is broadly consistent” with policymakers’ long-term goal of inflation averaging 2%, according to the report. Bottlenecks affecting products like used vehicles and appliances can provide “more lasting but likely still temporary upward pressure” on prices, the Fed added.

The Fed also provided new detail on how it expects the labor market to reach its goal of maximum employment. Unemployment remains elevated, and labor force participation has been flat in recent months as Americans remain on the sidelines. It’s possible the COVID-19 recession and the resulting worker shortage will have “long-term effects on the structure of the labor market,” the Fed said.

“The pandemic seems to have accelerated the adoption of new technologies by firms and the pace of retirements by workers. The post-pandemic labor market and the characteristics of maximum employment may well be different from those of early 2020,” the central bank added.

Fed Chair Jerome Powell is scheduled to present the report to Congress on Wednesday and Thursday.

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Unemployment declining faster in states that are cutting off $300 enhanced federal benefits, according to WSJ

Kansas City, Missouri
Kansas City, Missouri.

  • Unemployment is declining faster in states ending weekly $300 federal benefits, per the WSJ.
  • Missouri ended enhanced federal benefits for unemployed state residents as of June 12.
  • The state’s unemployment rate sits below the national average, but many continue to struggle.
  • Sign up for the 10 Things in Politics daily newsletter.

The number of Americans receiving unemployment benefits is declining at a faster rate in Missouri and 21 other US states that opted out of receiving enhanced federal payments this month, according to The Wall Street Journal.

Under the $1.9 trillion COVID-19 relief package that President Joe Biden signed into law in March, weekly federal pandemic compensation of $300 was added to state unemployment checks, with the benefits slated to expire in September.

Republican-led states recently moved to cut off the expanded unemployment aid, decrying its effect on job creators and alleging that the extra money keeps individuals from seeking millions of open jobs. Most Democratic-led states have embraced the aid, calling it a vital resource for the unemployed as the country continues to recover from the coronavirus pandemic.

GOP Gov. Mike Parson of Missouri said that federal benefits were gladly welcomed during the height of the pandemic, but with much the economy reopening, the continuation in payments “worsened the workforce issues” the state faced.

Amid concerns about a labor shortage, most GOP governors nixed what they saw as overly-generous federal aid.

In May, the Missouri’s unemployment rate was 4.2%, below the national average of 5.8%, according to data from the Department of Labor.

Missouri ended enhanced federal benefits for unemployed state residents as of June 12, making it one of the first states to take the action.

Seven additional states followed suit for the week ending June 19, and this weekend, 10 additional states will end aid to unemployed residents.

By July 10, four more states will have cut off enhanced benefits.

Read more: Meet 7 BidenWorld longtime consiglieres and a couple relative newcomers who have access to exclusive White House meetings

The number of individuals who received unemployment benefits decline by 13.8% by the week ending June 12, compared to mid-May, in states where governors explicitly said that enhanced benefits would end in June, based on an analysis by Jefferies LLC economists.

This figure compares to a 10% decline in states that are ending benefits in July, and a smaller 5.7% decline in states that intend to keep the benefits until the funding ends in September.

Impacted individuals would lose the $300 federal funding, but will continue to receive state unemployment benefits.

Aneta Markowska, Jefferies’ chief financial economist, told the Journal the result of states opting out of enhanced benefits was beginning to show.

“You’re starting to see a response to these programs ending,” she said, adding that “employers were having to compete with the government handing out money, and that makes it very hard to attract workers.”

However, some economists and a wide swath of Democrats point to issues such as a lack of adequate child care, low hourly wages in some industries, and a continued trepidation over COVID-19 in explaining why many have not rejoined the workforce.

In Missouri, the state’s workforce fared relatively well, with its unemployment rate peaking at 12.5% in April 2020, compared to the 14.8% national unemployment rate that month.

However, despite the less-than-dire outlook that comes from looking at the overall numbers, real people continue to struggle.

The Journal spoke with Davina Roberson, a 45-year-old Fenton, Mo., mother of two boys with special needs who was furloughed from her $26-an-hour position as a corporate travel agent last year.

While she continued to receive critical health benefits through her old employer, she would have to forgo the coverage if she took another role.

Roberson told the Journal that she has now sought help from food pantries and charities for clothing.

“It’s not that I don’t want to go back to work,” Ms. Roberson told the Journal. “But if I took a minimum wage job, I’d be working for health insurance and child care and have nothing left to live on.”

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3 fundamental changes from the pandemic economy that could become permanent

Coronavirus restaurant
A customer pays for his purchase in the doorway of Dave’s New York, a retail store, as phase one of reopening after lockdown begins, during the outbreak of the coronavirus disease (COVID-19) in New York City, New York, U.S., June 8, 2020.

  • Some elements of the pandemic-era economy are likely to stick around well after the recovery.
  • Experts warned the post-crisis economy would be different, and now it’s becoming clear how.
  • From remote work to a red-hot housing market, 4 fundamental shifts could be permanent.
  • See more stories on Insider’s business page.

The post-pandemic economy is taking shape.

Fifteen months after the US first plunged into lockdown, the economy is well on its way to a complete reopening. Spending is up, businesses are rehiring, and Americans are – slowly – returning to work. Economists largely agree that economic output will grow at the fastest rate since the 1980s this year.

Yet experts have warned the recovery will occur in a country that is permanently changed. Americans should brace for “a different economy,” Federal Reserve Chair Jerome Powell said in an April conference hosted by the International Monetary Fund.

Kristalina Georgieva, managing director of the IMF, said the post-pandemic economy could yield improvements if policymakers are prepared for substantial change.

“It doesn’t mean a worse economy if we think well in advance, if we think about educational attainment, if we think about flexibility for people entering the labor market, and if we think about where growth is going to come from,” she added during the conference.

And while the US is far from completing its recovery, some fundamental shifts are increasingly clear. Here are three pandemic-era changes that could turn permanent as the country enters a new normal.

1. Remote work becomes the norm

Remote work coronavirus
A video producer works from his at-home studio to conduct remote interviews with talent on April 19, 2020 in Franklin Square, New York.

Most of the US has reversed restrictions that kept employees from the office, but not all companies are mandating in-person work like they did in February 2020.

As much as 71% of the US workforce telecommuted some or all of the time during the coronavirus crisis, according to an October survey from Pew Research. Of the 5,858 American adults surveyed, 54% said they want to work from home after the pandemic ends. 

Business leaders themselves are embracing remote or hybrid work. The switch to flexible work structures is “a permanent civilizational shift,” venture capitalist and tech entrepreneur Marc Andreessen wrote in a recent blog post, while Facebook CEO Mark Zuckerberg has said he’ll work remotely for at least half of 2022, saying it made him “happier and more productive at work.” Facebook told its 60,000 workers in June they only need to work from offices 50% of the time. It was one of many giant firms to give its workers that kind of permission.

2. A persistently hot housing market


The shift to remote work made housing hot, as Americans drove outsize demand for new and existing homes. The rally intensified further as mortgage rates hit multiple record lows through the end of 2020.

That boom has since run out of steam, but not for insufficient demand; decades of chronic underbuilding left the market with insufficient supply. After months of surging sales, nationwide inventory sank to record lows and prices leaped at their fastest pace since the housing bubble of the mid-2000s.

The market needs as many as 6.8 million new homes to balance out supply over the next decade, the National Association of Realtors said in June. That would require a 27% jump in homebuilding activity, and economists aren’t optimistic builders will rise to the occasion. The lingering gap between home supply and buyer demand will likely keep home prices climbing at an elevated rate for years, the Urban Land Institute said in May. 

3. Service jobs are out of fashion

NYC coronavirus tables restaurant
Empty tables stand at a restaurant in Manhattan on March 01, 2021 in New York City.

Jobless are largely avoiding the service industry amid reopening.

The pandemic exposed a handful of weaknesses throughout the sector. Employees risked exposure to COVID-19 just by showing up to work; wage growth remained stagnant; and conditions in retail and food service jobs worsened as businesses pushed to do more with fewer workers.

Surveys show people are looking for better pay, conditions, or both. Separately, quits soared to a record-high 4 million in April, with most occuring in the retail, food services, and accommodation industries.

Service businesses are catching on. Large-scale employers including Chipotle, McDonald’s, Amazon, and Under Armour all raised their starting wages in recent months as they rush to attract workers. Others are offering perks ranging from signing bonuses to fitness machines. To be sure, this could be a temporary hiccup during a reallocation of the workforce.

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Biden whispers the quiet part out loud on the labor shortage: ‘Pay them more!’

President Joe Biden.

  • The solution to attracting workers is to simply “pay them more!” Biden whisper-shouted on Thursday.
  • Massive demand for workers gives Americans a new “bargaining chip” for earning higher pay, he added.
  • The comments come as businesses are hiking wages and offering incentives as they scramble to rehire.
  • See more stories on Insider’s business page.

The solution to the labor shortage is, according to President Joe Biden, as simple as a higher wage.

The president allayed a range of concerns around the economy during a Thursday press conference. Among them is the nationwide labor shortage, which has seen hiring slow despite millions of Americans still being unemployed. The shortage may be delaying a full labor-market recovery, but he told journalists at the White House there’s an easy solution.

“I remember you were asking me … ‘Guess what? Employers can’t find workers.’ I said, ‘Pay them more!'” the president said in his distinctive whisper-shout.

The refrain has been popular with Biden as businesses rush to attract workers. The president said in May that the accelerating rate of wage growth was a “feature” and “not a bug” of the post-pandemic economy. Increased competition between employers gives Americans more “dignity and respect in the workplace,” he added.

“This is the employees’ bargaining chip now,” he said on Thursday. “[Employers] are going to have to compete and start paying hard-working people a decent wage.”

The president also eased fears that recent bouts of stronger inflation would hinder the recovery. The Consumer Price Index – a popular gauge of broad inflation – rose 0.6% in May, beating the median estimate of a 0.4% gain. The reading marked the fastest rate of price growth since 2009, but Biden assured the overshoot would soon fade.

“The overwhelming consensus is it’s going to pop up a little bit and then come back down,” he said.

The president’s comments were made during a press conference focused on the $1 trillion bipartisan deal for infrastructure spending that Biden had thrown his support behind earlier on Thursday. The plan includes funding for physical infrastructure like roads and bridges, as well as improved broadband access and public transit projects.

The package represents just half of the White House’s economic plan, Biden said during the afternoon press conference. The other portion will focus on improving childcare, education, and clean energy projects. Both proposals will move through Congress “in tandem” and represent Biden’s next steps for building a stronger economy.

“If it turns out that what I’ve done so far – what we’ve done so far – is a mistake, it’s going to show,” the president said. “If that happens, my policies didn’t make a lot of sense. But I’m counting on it not.”

Biden has long advocated a $15 minimum hourly wage, but opposition from Senate Republicans and even some Democrats has kept such legislation from reaching his desk. Still, elements of his $1.9 trillion stimulus package may have achieved a similar effect. The $300-per-week boost to jobless benefits led unemployment insurance to compete with the average wage in every state, Insider’s Andy Kiersz calculated.

Twenty-six states have since announced plans to prematurely end the benefit in hopes of pushing more Americans to find work. Yet early job-search data suggests the move is doing little to spur employment. And some jobless Americans told Insider in May that, after receiving generous UI payments for several months, they don’t plan to return to low-paying jobs.

“These guys are just dumbasses if they actually think that the UI is the problem and not the wage,” Matt Mies, an unemployed 28-year-old, told Insider’s Juliana Kaplan, referring to Republican governors ending the benefit early.

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The government is pursuing ‘maximum employment’ for the first time. Here’s how it differs from ‘full employment’ and the risks it brings.

Now Hiring Sign
A pedestrian walks by a now hiring sign at Ross Dress For Less store on April 02, 2021 in San Rafael, California.

  • The Fed is targeting “maximum” employment over “full” employment in a major shift for the US economy.
  • The new goal aims to bring forth a more equitable rebound, particularly for minorities and low-income households.
  • This focus tests how many Americans can be hired before an inflationary spiral is set off.
  • See more stories on Insider’s business page.

Maximum employment. Full employment. They may seem to be similar phrases, but they are dramatically different, in ways that could shape the US economy long after the pandemic ends.

After decades of adhering to an agreed-upon employment threshold called full employment, the Federal Reserve is trying a new playbook. In August, the central bank replaced this goal with “maximum employment” as part of a new policy framework.

Whereas the previous target sought to minimize deviations when employment was too high or low, the Fed now aims to “eliminate shortfalls of employment from its maximum level,” Governor Lael Brainard said in February.

Put another way, the central bank will push for a labor market that doesn’t just feature low unemployment, but also inclusivity and healthy wage growth. The new mandate sounds encouraging. But to achieve it, the Fed is entering uncharted territory.

How much unemployment can you have with low inflation?

The previous threshold for low employment rested on a concept known as the non-accelerating inflation rate of unemployment (NAIRU), which represents a level of unemployment at which inflation doesn’t spiral out of control. Though the true rate is unknown, the Congressional Budget Office estimated it stood at roughly 4.5% in 2020.

NAIRU served as a loose guide for the Fed as the US recovered from the Great Recession, but it didn’t quite work. The labor market’s recovery from the financial crisis was, and remains, the longest of any recovery since World War II.

Since the start of the coronavirus recession, Fed officials made it clear they weren’t going to use the same strategy. The Fed’s new framework seeks inflation that averages 2% over time. That opens the door to periods of stronger inflation.

Prematurely retracting monetary support can leave underserved communities hurting and set the US back for years, Fed Chair Jerome Powell said following the FOMC’s March meeting. By allowing for a brief period of elevated inflation, the central bank believes it can power a faster and more equitable labor market recovery.

“There was a time when there was a tight connection between unemployment and inflation. That time is long gone,” Powell said. “We had low unemployment in 2018 and 2019 and the beginning of ’20 without having troubling inflation at all.”

The maximum-employment experiment is uncharted territory

Despite Powell’s repeated messaging that stronger inflation will prove largely “transitory,” some economists slammed him for risking a dangerous inflationary spiral. Letting inflation run above 2%, they say, can spark a cycle of soaring prices that would cripple the still-recovering economy.

Keeping rates near zero into 2023 “seems to me at the edge of absurd,” Larry Summers, a former Treasury Secretary who has criticized the fiscal and monetary response to the pandemic, said at a May event hosted by CoinDesk.

“We used to have a Fed that reassured people that it would prevent inflation,” Summers said. “Now we have a Fed that reassures people that it won’t worry about inflation until it’s staggeringly self-evident.”

Higher inflation also tends to give way to higher wages, but rising pay might not benefit the economy as some hope. Fed analysis of how stimulus checks were spent suggests most additional income would mostly go toward paying debts and boosting savings, with only a fraction going toward spending.

Even the target for maximum employment isn’t entirely clear, as an unusually large number of Americans likely stopped working for good during the pandemic. A “significant” number of retirees skews estimates of the labor force’s size, Powell said in a Wednesday press conference. This effect “should wear off in a few years” as retirees are replaced with new workers, he added. Maximum participation will likely cloudy until then, whenever that is.

The unusually large jump in retirements through the pandemic could still give way to a stronger labor market, as was seen in the years before the health crisis, Randal Quarles, vice chairman for supervision, said in late May. Still, with uncertainties abound, the Fed may need to issue “additional public communications” about its progress targets and broader goal of maximum employment, he added.

That means maximum employment, while a worthy goal in many ways, carries more than inflation risks. It could be a cloudy and uncertain destination even for top policymakers.

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US retail sales slid from record highs in May amid waning reopening boost

Shopping Target
  • US retail sales fell more than expected in May as Americans settled into a new normal.
  • Spending dropped 1.3% through the month. Economists expected a decline of 0.7%.
  • The reading marks the largest decline since February, but sales still sit 28% higher from May 2020.
  • See more stories on Insider’s business page.

Spending at US retailers slumped for the first time since February last month as more economic restrictions were reversed and Americans settled into a new sense of normal.

US retail sales fell 1.3% in May, the Census Bureau said Tuesday. Economists surveyed by Bloomberg held a median estimate for a 0.7% decline. The decline places monthly sales at $620 billion and just below the record-high seen in April.

The April sales data was revised higher to a 0.9% jump from an initially unchanged reading.

While sales sit lower than the previous total, they’re still up 28% year-over-year and 18% from pre-pandemic highs. The May 2020 sales report showed spending surge as stimulus included in the $2.2 trillion CARES Act revived economic activity. It also marked the largest one-month sales jump in data going back to 1992.

Spending in the clothing and accessories industry was up 200% year-over-year, while sales at food services and bars sat 71% higher from the year-ago period.

Sliding sales and rising inflation

The May dip in retail spending suggests that, after reopening unleashed pent-up demand, consumers are pulling back. Retail sales were among the few indicators to stage a V-shaped rebound early in the pandemic and quickly exceed pre-crisis levels. Now, as stimulus dries up and the final lockdown measures are unwound, spending is set to moderate.

Such a trend would be good news for those fearing runaway inflation. The wave of consumer demand and various bottlenecks throughout the economy led price growth to accelerate sharply through the spring. The Consumer Price Index rose 0.6% in May, beating the median estimate for a 0.4% jump.

The gauge also rose 5% year-over-year, marking the fastest one-year inflation rate since 2008. Though the reading is somewhat skewed by falling prices in May 2020, it still signals inflation firmed up as massive demand ran up against widespread supply shortages. A steady dip in retail sales could hint at softer demand through the summer.

But whereas fiscal stimulus like direct payments and enhanced unemployment insurance will soon lapse, monetary policy remains highly accommodative. The Federal Reserve has indicated it is willing to run the economy hot to foster a faster and more inclusive recovery for the labor market. The central bank continues to hold interest rates near zero and buy at least $120 billion in assets each month to maintain its policy stance.

The Federal Open Market Committee will give the next hint at when the Fed will retract its support on Wednesday, following its two-day meeting. Policymakers are expected to hold interest rates and purchase pace steady but note the committee has begun talks on when to taper its asset-buying. Fed Chair Jerome Powell will likely acknowledge that, while inflation has exceeded estimates, the elevated rate will prove temporary as supply-chain strains are solved.

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American inflation is extraordinary because the US economic recovery is ‘exceptional,’ JPMorgan says

New York shopping reopening
People walk through downtown Brooklyn on May 03, 2021 in New York City.

  • The US’ massive stimulus response and a unique labor shortage are fueling stronger price growth.
  • Yet the US is recovering faster than its peers and enjoying an unprecedented demand boom, JPMorgan said.
  • This soaring inflation is a byproduct of the country’s “exceptional” recovery, the bank said.
  • See more stories on Insider’s business page.

Inflation in the US is handily outpacing that of other advanced economies, and it’s probably thanks to the country’s stellar recovery, JPMorgan economists said.

With vaccines rolling out and lockdown measures slowly being lifted, the global economy is on the mend. Advanced economies lead the pack, benefitting from massive stimulus measures and more efficient vaccine distribution. Within that group, the US is among the best performers. The country’s economic output is expected to grow at the fastest rate since the 1950s, and some banks are already revising their estimates for 2022 growth higher on hopes for an even smoother rebound.

Yet concerns of soaring inflation have offset some reopening optimism. A popular gauge of US price growth rocketed 0.6% month-over-month in May and 5% year-over-year, exceeding estimates and marking the largest one-year leap since 2008. Where the Federal Reserve has said it expects the overshoot to be temporary, supply bottlenecks threaten to accelerate inflation further through the year.

JPM Inflation
va JPMorgan

The latest inflation readings are unusually strong, but are likely a byproduct of the US’ outperformance, the JPMorgan team led by Bruce Kasman said in a Friday note. Where the World Bank expects advanced economies to grow 5.4% in 2021, it sees US GDP expanding 6.8% and outpacing peers through the following two years.

The strength of the country’s rebound explains why inflation bounced back so suddenly, the team said.

“Although core inflation is tracking above the pre-pandemic pace elsewhere, the US has been exceptional for a number of reasons,” the JPMorgan economists added.

For one, the country’s service industry was hit particularly hard by the pandemic. Services prices dropped a full 2% at the peak of the downturn, surpassing the damage seen in other advanced economies.

The US also embarked on a far more ambitious stimulus rollout. Congress approved roughly $5 trillion in fiscal support during the health crisis. Much of that aid came in the form of direct payments and bolstered unemployment benefits. Once the country began to reopen, that support drove a demand boom that quickly lifted spending above its pre-pandemic peak. By contrast, spending remained weak in Western Europe, where stimulus wasn’t as large or direct, JPMorgan said.

Trends in the US labor market also contributed to the country’s strong recovery and faster inflation, the team added. Where employers laid off workers en masse at the start of the pandemic, they’re now rushing to rehire and service an unprecedented wave of consumer demand. Job openings soared to a record high in April, but the budding labor shortage also saw quits hit a record and payroll growth slow sharply.

The imbalance between worker supply and employer demand has since driven wages sharply higher as businesses struggle to attract workers. The jumps in labor costs and households’ purchasing power will further lift inflation, the economists said.

That pick-up isn’t to be feared, according to the Federal Reserve. The central bank has said it will let inflation run hot in hopes of driving stronger employment and wage growth through the recovery. President Joe Biden similarly praised the trend in a late-May speech, saying the jump in average pay is a “feature,” not a bug, of the US recovery.

Still, the Fed has hinted it has thought about pulling back on some of its monetary support. The Federal Open Market Committee is expected to maintain its accommodative policy stance but hint at plans to taper its emergency asset purchases when it concludes its June meeting on Wednesday.

Policymakers will likely recognize the spike in inflation rates but maintain that the economy remains far from the Fed’s “substantial further progress goals,” JPMorgan said. The first post-pandemic rate hike will probably arrive in late-2023, the team added, leaving plenty of time for the Fed’s ultra-easy policy to drive the recovery that JPMorgan is calling “exceptional” forward.

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BlackRock’s Rieder says the Fed should begin rolling back ‘extreme policy accommodation’ as inflation data comes in hotter than expected

FILE PHOTO - Rick Rieder, BlackRock's Global Chief Investment Officer, speaks during the Reuters Global Investment Outlook Summit in New York City, U.S., November 14, 2016.  REUTERS/Brendan McDermid
Rick Rieder, BlackRock’s Global Chief Investment Officer, speaks during the Reuters Global Investment Outlook Summit in New York

  • BlackRock’s Rick Rieder doubled down on his stance the Fed should start pulling back on ultra-accommodative policy.
  • Rieder said Thursday’s inflation data shows prices are overwhelmingly high.
  • He said the Fed will be better served fulfilling its mandate if it begins discussing tapering.
  • See more stories on Insider’s business page.

BlackRock’s Rick Rieder doubled down on his stance that the Fed should consider rolling back its accommodative policy stance after key inflation data came in hotter than expected on Thursday.

CPI rose 5% year-over-year in May, higher than the consensus estimate of 4.7%. May Core CPI, which excludes volatile food and energy components, came in at 0.74% month-over-month and 3.8% year-over-year, well above the consensus forecast and driven higher by used vehicle prices.

The BlackRock chief investment officer of global fixed income said the data is just the latest sign that certain parts of the economy don’t have sufficient product inventory to supply the demand at current prices.

The Federal Reserve has suggested that some of the price gains are transitory, and therefore it will not be changing its policy stance until there is sustained inflation. Rieder, who is also the head of the BlackRock global allocation investment team, said that framework may need to change.

“Ongoing adherence to the newly minted Average Inflation Targeting (AIT) framework in the face of a torrid 2021 economic recovery that is visibly supply constrained, risks upending the very stability that the AIT framework claims to seek to achieve,” Rieder said.

The Fed would be better served in fulfilling its mandate to begin to discuss the tapering of asset purchase and to attempt to avoid the ” destabilizing influences that can result from excessive use of extreme policy accommodation,” he added.

Rider also said the inflation data out today is an “overwhelming” sign that prices are moving too high in some areas as demand grossly outpaces supply.

“In our view, the pursuit of inflation merely for inflation’s sake poses a very real problem: That problem is that inflation in daily necessities is disproportionately felt by lower-income cohorts,” said the CIO.

In an interview with CNBC on Monday, he said he is confident that the market is ready for the Fed to taper its asset purchases and remove “excessive emergency conditions” that have become a market risk.

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