America’s companies are struggling to hire workers back. It risks derailing the economic recovery.

San Francisco reopening
Manager Cynthia Martinez converses with guests at El Rio, located at 3158 Mission St., on Saturday, April 3, 2021, in San Francisco.

  • The labor market is on the path to recovery, but it’s not a sure thing as the economy reopens.
  • Worker shortages are hitting some businesses, and experts warn of millions of jobs permanently lost.
  • Stimulus hasn’t led to a spending surge yet, and Americans may sit on their huge savings pile.
  • See more stories on Insider’s business page.

The positive March jobs report showed a country on the brink of full reopening, with good news for the economy around the corner. But just reopening isn’t enough for a full recovery.

“There’s no guarantee that the people whose jobs have been permanently eliminated will be able to find work elsewhere,” Nancy Vanden Houten, lead economist at Oxford Economics, told Insider. “At the same time, there’s a risk that labor force participation won’t return to what it was prior to the pandemic. We might still experience shortages of workers.”

Filling the hole in the labor market will take more than reaching a 3.5% unemployment rate and recouping every lost payroll, she said. The country was adding roughly 200,000 jobs a month before the pandemic, meaning the labor market will have to get back to the February 2020 level – and then some – to reach maximum employment.

The US began that climb in earnest last month, adding 916,000 nonfarm payrolls, blowing the median estimate of a 660,000 gain out of the water. The unemployment rate fell to 6% from 6.2%, matching economist forecasts, still far above the 3.5% pre-pandemic rate.

Experts are bracing for several months of outsize job gains as consumers thaw the frozen economy. But to Vanden Houten’s point, pressures are now emerging on the supply side. While consumer demand shows signs of coming back, other signs point to an imbalance between job openings and Americans actively seeking work.

Jobless claims, however, have been volatile in recent months and give a clearer hint at deep scarring. Filings fell to a pandemic-era low of 658,000 in March but rose to 744,000 last week, signaling persistent challenges in hiring.

Supply strains and lagging cities present new challenges

Some of the world’s top economic policymakers are warning of long-term scarring of the labor force that reopening can’t address. Countries will need to “think well in advance” of what a post-pandemic economy will look like so as to add jobs where they’re going to be, Kristalina Georgieva, managing director of the International Monetary Fund, said in a Thursday video conference.

Federal Reserve Chair Jerome Powell echoed her remarks, noting that millions of Americans will struggle to find work as they acclimate to a permanently changed labor market.

“The real concern is that longer-term unemployment can allow people’s skills to atrophy, their connections to the labor market to dwindle, and they have a hard time getting back to work,” he said in the conference. “It’s important to remember we are not going back to the same economy, this will be a different economy.”

Even the businesses set to benefit most from reopening are running into snags. Staffing at full-service restaurants remains down 20%, or 1.1 million openings, from the year-ago level, according to data from the National Restaurant Association. Owners and managers interviewed by The New York Times attributed the persistent shortfall to a lack of available workers. Others said their former employees chose to stay out of the workforce and subsist on expanded unemployment benefits.

The country’s most densely populated areas are also experiencing slow recoveries, government data shows. Los Angeles and New York City held the highest February unemployment rates of the 51 major metropolitan areas: 9.9% and 9.8%, respectively. This kind of high unemployment in densely populated cities is bad news for the economic recovery, as the longer that the engines of the pre-2020 economy lie dormant, the further away lies a return to a kind of “normal,” unless a new normal rapidly takes its place.

The stimulus spending boost could be smaller than expected

The government acknowledged risks associated with weak spending and acted on them. The $1.9 trillion stimulus measure approved by President Joe Biden in March was the largest relief package to hit the US economy since the CARES Act was passed in the first months of the pandemic. Americans received support in the form of stimulus checks and bolstered unemployment benefits, two boosts set to supercharge spending and overall demand as the economy reopened.

Recent studies suggest that boost may not be be as potent as anticipated. Stimulus check recipients spent just under one-quarter of their latest relief payments, according to researchers at the Federal Reserve Bank of New York. That’s less than the share spent from the CARES Act checks or the $600 payments issued in January.

About 42% of the payments were saved, the highest percentage of all three stimulus checks. Though those savings can be unwound over time, they do little to aid the recovery in the near term. The remainder of the checks is expected to go toward paying down debts.

“As the economy reopens and fear and uncertainty recede, the high levels of saving should facilitate more spending in the future. However, a great deal of uncertainty and discussion exists about the pace of this spending increase and the extent of pent-up demand,” the team led by Oliver Armantier said.

Stimulus passed throughout 2020 already buttressed Americans’ savings, and there’s been little sign of that cash being put to use. Peoples’ savings grew by $1.6 trillion since last March, according to the New York Fed, but that sum is largely staying in bank accounts instead of moving throughout the economy.

Americans who held onto their jobs haven’t increased their spending activity even though their savings increased, the Fed researchers said in a Monday blog post. Limitations to how much people can dine out or go on vacation will also curb a surge in consumer spending.

“It is certainly possible that some of these savings will pay for extra travel and entertainment once the COVID-19 nightmare is behind us, but our conclusion is that the resulting boost to expenditures will be limited,” the team said.

Outlooks remain strong. Banks are forecasting the strongest economic growth in decades, and the March payrolls report bodes well for near-term job gains. The president’s $2.3 trillion infrastructure plan promises to create millions of new jobs if it can win ample bipartisan support.

But the path to a fully healed labor market remains riddled with downside risks. Trends in worker availability, consumer spending, and permanent scarring will determine whether the country can stage one of the fastest economic recoveries in history.

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Americans have saved $1.6 trillion since the pandemic started and it poses little inflation risk, the Fed says

Capital One ATM
A man uses the ATM at a Capital One bank in Midtown Manhattan on July 30, 2019 in New York City.

  • Americans’ savings rose by $1.6 trillion during the pandemic thanks to stimulus and weak spending.
  • Some experts fear households will quickly spend their savings and fuel runaway inflation.
  • Studies suggest most will hold onto the cash even after the US reopens, Fed researchers said.
  • See more stories on Insider’s business page.

Gradual reopening and widespread vaccination have economists wondering how Americans will spend in a post-pandemic economy. Researchers at the Federal Reserve Bank of New York see little cause for concern.

Americans enjoyed a savings surge during the pandemic as government stimulus hit households and lockdown measures cut down on spending. Estimates suggest people held on to roughly $1.6 trillion in savings since last March, when the health crisis first slammed the economy.

The sum highlights the scale of the government’s support throughout the coronavirus recession. Yet some experts fear that, if too much of these savings are spent too quickly, the recovery will be disrupted as rampant inflation takes hold.

Such a demand bounce is unlikely, professors and economists at the New York Fed said in a Monday blog post. For one, Americans who kept their jobs still haven’t spent nearly as much as they would in a pre-pandemic economy.

“Increased purchases of furniture, electronics, and other goods have compensated only in part for this reduced spending on services,” the economists said. “As a result, overall consumption has fallen for many households, even if their income is more or less intact.”

The roughly $5 trillion in stimulus passed by President Donald Trump and President Joe Biden over the last year also contributed to the savings boom. Relief doled out in direct payments and expanded unemployment benefits was used to pay down debts and cover living costs, but some was tucked away as savings.

It’s also possible that some households increased their saving habits as a precautionary measure due to uncertainty around how the economy would fare, the researchers said.

NYFed
Source: Federal Reserve Bank of New York.

The very nature of excess savings suggests they won’t be unwound too quickly. Stimulus recipients spent roughly one-third of the government support, according to Fed estimates. The rest was mostly saved, likely by households that already enjoy a financial buffer. It’s possible that circumstances change and force Americans to tap their savings sooner than expected, but the economy’s steady recovery should lead habitual savers to keep holding on to their funds, the team said.

Even when the economy fully reopens and Americans have more ways to deploy their cash, the researchers don’t expect a sudden rise in spending. Many are sure to dine out more often or take a vacation that wouldn’t have been taken otherwise, but there’s a limit to how much a household can boost its discretionary spending, the team said.

“It is certainly possible that some of these savings will pay for extra travel and entertainment once the COVID-19 nightmare is behind us, but our conclusion is that the resulting boost to expenditures will be limited,” the economists said.

This conclusion – and likely outcome – is a key reason why, as Insider’s Hillary Hoffower reported, a full economic recovery depends on the wealthiest Americans spending much more than they did over the last 12 months of the pandemic.

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Americans’ inflation expectations hit a 7-year high as the economic recovery picked up, Fed survey finds

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Meat in grocery store
Businesses are likely to lift prices in line with consumers’ anticipations.

  • Americans are bracing for the strongest inflation in a decade, according to a new Fed survey.
  • One-year inflation expectations rose in February to 3.1% from 3%, the highest reading since 2014.
  • Price growth hasn’t trended above the Fed’s 2% target since the late 1990s.
  • Visit the Business section of Insider for more stories.

Americans are bracing for the strongest inflation in a decade as new stimulus promises to accelerate the US economic rebound.

Consumers’ median year-ahead inflation expectations rose to 3.1% in February from 3%, according to the Federal Reserve Bank of New York’s Survey of Consumer Expectations – the highest reading since July 2014. The higher expectations come as COVID-19 case counts dive and business activity sharply improves.

Expectations for inflation three years from now held steady at 3%, according to the Fed.

Each reading would represent the highest inflation since 2011, according to data from the World Bank. Price growth hasn’t steadily trended above the Fed’s 2% target since the early 1990s, and the central bank has been trying to counteract weak inflation for decades.

The Fed now aims to seek inflation of more than 2% for a period of time after the pandemic, and the latest survey of consumers signals consumers are gearing up for such conditions.

Inflation expectations are often used as a preview of how price growth will trend. If consumers expect prices to rise a certain amount over time, businesses are likely to lift prices in kind and workers will seek similar increases in their pay.

To be sure, inflation expectations historically run higher than actual price growth. The University of Michigan’s inflation-expectations gauge, for example, has held above 2% over the past decade despite price growth rarely rising to that level.

The Fed has also indicated that, while inflation expectations may rise to their near-term target, it will wait until true inflation trends higher before it pulls back on ultra-loose monetary conditions. New stimulus and economic reopening are expected to fuel stronger price growth, but the effect will likely be short and temporary, central bank chair Jerome Powell said in February.

Elsewhere in the survey, uncertainty around consumers’ inflation expectations rose slightly for the one-year figure and dipped for the three-year forecast.

Home-price inflation expectations held at 4% last month, the highest level since May 2014. Expectations for the one-year change in gas prices rose to a record 9.6% from 6.2%. Median expectations for rent-cost growth similarly rose to a record 9% from 6.4%.

Household spending growth expectations rose to 4.6% from 4.2%, reaching the highest level since December 2014. Forecasted income growth was unchanged at 2.4%, landing well above the April 2020 low of 1.9% but below assumed inflation.

Americans also grew slightly more confident in making their debt payments and in interest rates rising, the Fed found.

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