3 reasons the disconnect between high unemployment and available job openings could continue long-term, according to Morgan Stanley’s wealth-management CIO

Lisa Shalett
Lisa Shalett, the chief investment officer of wealth management at Morgan Stanley.

  • Lisa Shalett analyzed the disconnect between robust hiring demand and elevated joblessness.
  • The Morgan Stanley wealth-management CIO named three factors that could make the disconnect persist.
  • They are accelerated retirements, a growing skills gap, and geographic imbalances in the labor pool.
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The number of job openings in the US reached a record high of 9.3 million in April. At the same time, the unemployment rate remained elevated at 5.8%, according to data from the US Bureau of Labor Statistics.

The disconnect between these figures has been the source of debate for many economists and market watchers.

Now, Morgan Stanley is shedding some light on why the US economy may be seeing such a dynamic.

In a blog post this week, Lisa Shalett, Morgan Stanley’s chief investment officer of wealth management, described three reasons behind the high levels of unemployment amid record available job openings. She detailed the challenges facing both employers and job seekers in today’s jobs market.

Shalett says job seekers are struggling with public-health concerns, the availability of childcare, and the seasonality of school reopenings, while also noting that some experts believe pandemic-related federal aid might dissuade some unemployed people from returning to work.

On the other hand, Shalett says employers are struggling to find talent, with some manufacturers even cutting shifts to avoid operating at a loss.

Shalett goes on to reveal three main reasons the disconnect between high unemployment and available job openings might linger.

Accelerated retirements

The first factor Shalett cited in her blog post was accelerated retirements. According to Morgan Stanley’s chief US economist, in the 12 months to February, the US retiree population jumped by 2 million.

Shallet said this trend couldn’t be explained by aging alone and might lead to a persistent gap between unemployment and job openings.

A widening skills gap

The second factor is a widening skills gap between what employers need and what employees have to offer.

The CIO said this suggested there was a tighter labor market than indicated by headline unemployment data, as companies compete for a smaller field of qualified workers.

A Beyond Skills survey of 1,000 executives across several sectors found that more than 60% of business leaders believed the events of 2020 had widened the skills gaps in their businesses, per City AM.

Geographic imbalances in the labor pool

Finally, Shalett highlighted “pandemic relocations” that had become permanent. She said resulting geographic imbalances in the labor pool had added to the disconnect between the number of jobs on offer and the number of job seekers.

Nearly 36 million people changed addresses in 2020, according to data from the US Postal Service. And a CBRE analysis found that “net move-outs from high-cost coastal cities increased.”

Shalett warned clients in her post that if these factors continued to foment a tighter labor market, it could cause inflationary pressure.

She said investors should watch average hourly earnings, total real income, and the Employment Cost Index for evidence of “sticky inflation.”

The CIO also recommended investors “emphasize security selection, with a focus on companies that have pricing power and levers to sustain profit margins in the face of growing headwinds.”

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Global stocks waver near record highs with US inflation data in focus, as bitcoin rebounds from its 10% slump

Traders and financial professionals work on the floor of the New York Stock Exchange

Global stocks steadied around their all-time highs on Wednesday after a further calming of inflation fears helped drive a major rally in sovereign bonds.

Futures on the Dow Jones, S&P 500, and Nasdaq were mostly in the green, suggesting a higher start to trading later in the day.

US indices have proven unwilling to stray from their current levels in the last few days, said Connor Campbell, a financial analyst at SpreadEx. “Perhaps investors are waiting until tomorrow’s inflation data is revealed,” he said.

Investors are awaiting the US consumer price index for May, due to be released Thursday, as they assess whether rising inflation may nudge the Federal Reserve into rolling back its ultra-easy monetary policy. According to Dow Jones, economists expect the figure to rise 4.7% year-on-year.

The yield on the 10-year US Treasury note fell to its lowest level in almost three months, by 2% to 1.52%, suggesting an increase in demand for bonds.

UBS said concerns that US GDP growth is close to a peak could help explain why equities have struggled to break out of their range in the past few months.

“While concerns about peak growth in the US may have taken some wind out of the market’s sails, we think investors should look at other offsetting tailwinds,” Mark Haefele, chief investment officer at UBS Global Wealth Management, said. “We expect the cyclical recovery momentum to persist in the second half of the year, albeit with some bouts of volatility.”

Read More: A veteran options trader breaks down 3 potential drivers of AMC’s 2,500% surge this year – and shares how long the retail-fueled rally might last

Bitcoin recovered from its previous day’s 10% slump by climbing 4% to $34,240. The digital asset was trading around $31,036 on Tuesday, partly prompted by US authorities’ ability to use a private key to retrieve some of the Colonial Pipeline ransom.

“It seems the FBI has used some other chicanery to obtain the private key other than cracking the bitcoin algorithm, to the relief of bitcoin evangelists and cybercriminals everywhere,” said Jeffrey Halley, a senior market analyst at OANDA. “That saw it pare much of yesterday’s losses.”

In the UK, the government is considering delaying the final lifting of its COVID-19 lockdown, initially scheduled for June 21. Cases in the country are now up 61% compared with last week, but still comparatively lower than in the winter months.

London’s FTSE 100 fell 0.5%, while the Euro Stoxx 50 and Frankfurt’s DAX were about flat.

Rising inflation in China – up from 0.9% in April to 1.3% in May – can shoulder some of the blame, having sparked a flurry of losses in the FTSE’s mining sector, Campbell said. UK miners Rio Tinto, Anglo American and Antofagasta were all down more than 1.2%.

Asian equities mostly traded slightly lower, but China’s slight increase in inflation and officials discussing coal price controls lifted markets on the mainland.

China’s Shanghai Composite rose 0.3%, Japan’s Nikkei fell 0.3%, and Hong Kong’s Hang Seng was about flat.

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Job openings rise to new record-high in April as US labor shortage slows hiring

Hiring sign labor market coronavirus
People walk by a Help Wanted sign in the Queens borough of New York City on June 04, 2021 in New York City.

  • US job openings jumped to 9.3 million from 8.3 million in April, setting a new record high.
  • The reading comes in above the median estimate of 8.2 million and marks a fourth straight gain.
  • Roughly 1.1 Americans competed for every opening, down from 1.2 as the labor shortage intensified.
  • See more stories on Insider’s business page.

Demand for workers in the US intensified in April as nationwide reopening squared off with an unprecedented labor shortage.

Job openings rose to a record-high 9.3 million from 8.3 million in April, according to Job Openings and Labor Turnover Survey, or JOLTS, data released Tuesday. Economists surveyed by Bloomberg held a median estimate of 8.2 million openings.

The reading marks a fourth consecutive jump in openings. The report also sheds more light on how the labor market performed through April. The month’s nonfarm payrolls report, released in early May, showed hiring drastically slowing as businesses reported difficulties finding workers.

The April payroll gains have since been revised slightly higher, and data published last week showed hiring rebound in May. Yet job growth is still down from the pace seen in March despite openings climbing further. Democrats have attributed the slowdown to a push for higher wages, while Republicans largely blame enhanced unemployment insurance.

The Tuesday JOLTS report showed fewer Americans competing for each opening. About 1.1 available workers existed for each open job, down from 1.2 in March. The reading compares to a pre-pandemic average of 0.8 and a crisis peak of 5.

A detailed look at April hiring and firing

Like the jobs report published on Friday, the JOLTS release includes more a granular look at which sectors thrived and which lagged, albeit one month behind the Bureau of Labor Statistics’ report.

The accommodations and food services sector added the most job openings throughout April, with a gain of 349,000 positions. The educational services sector shed 23,000 openings, setting the month’s largest decline.

Separations, which include layoffs and quits, jumped by 324,000 to 5.8 million.

Quits rose to a record-high 4 million from 3.6 million. Layoffs and discharges fell by 81,000 to 1.4 million, mirroring the downward trend in weekly jobless claims.

The US hiring rate held steady at 4.2%. That’s just above the pre-pandemic trend and suggests the labor shortage intensified through April.

The latest labor-market diagnosis

While the JOLTS report lends more detail to how the economy fared in April, Friday’s jobs report gave the most up-to-date look at the labor market’s performance. The US added 559,000 nonfarm payrolls last month, missing the median estimate of 674,000 jobs but improving significantly from the April pace.

The unemployment rate fell to 5.8% from 6.1%. The decline, powered by strong hiring and a slight drop in labor-force participation, beat the median estimate of 5.9%.

Economists largely viewed the report as a lukewarm print. “With unemployment benefits set to fade in the fall, we may be waiting until the end of summer before we see clear evidence of a fundamentally healing labor market,” Seema Shah, chief strategist at Principal Global Investors, said.

The Friday report also showed wages surging for a second consecutive month. Economists have looked to average hourly earnings for signs of whether labor shortages are merely overblown anecdotes or signs of a more widespread shift. Combined with the marked climb in openings through the spring, the strong upward pressure on wages backs up reports that Americans are holding off on returning to work.

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Job openings hit a record high in March – showing the gap between job postings and hirings was huge even before April’s jobs report

Hiring jobless December
  • US job openings rose to 8.1 million from 7.4 million in March, according to JOLTS data.
  • That lands above the median estimate of 7.5 million and marks a record number of openings.
  • The hiring rate climbed to 4.2% from 4% as stimulus and vaccinations fueled reopening.
  • See more stories on Insider’s business page.

Job openings grew to record highs in the US in March amid continued vaccination and fresh stimulus.

The data shows businesses reopening along with the country, yet last Friday’s jobs report for April indicated employers have since had trouble filling those jobs.

Openings rose to 8.1 million from 7.5 million, according to Job Openings and Labor Turnover Survey, or JOLTS, data published Tuesday morning. The median estimate from economists surveyed by Bloomberg was for 7.5 million openings. The reading marks a third straight increase and places job openings at their highest level ever.

The food services, accommodations, and state and local government education sectors added the most openings throughout the month. The health care and social assistance sectors shed 218,000 jobs, marking the largest decline of the month.

Separations, which count layoffs and quits, dropped to 5.3 million from 5.4 million.

Quits climbed by 125,000 to 3.5 million. Layoffs and discharges sank by 243,000 to 1.5 million.

The country’s hiring rate rose to 4.2% from 4%, according to the report. That’s just above the pre-pandemic trend. Yet with roughly 10 million Americans unemployed, the pace signals the labor market recovery will take years if hiring doesn’t accelerate further.

Data published Friday suggests that such acceleration isn’t likely, at least not in April. The US added just 266,000 jobs last month, grossly missing the median estimate for 1 million payrolls. The reading also marked a sharp deceleration from the job growth seen in March. Unless the April figures prove to be noise or are revised higher, the report hints the labor market recovery hit major snags despite the broad easing of economic restrictions.

Some attributed the weak payroll growth to reports of labor shortages, but JOLTS data showed plenty of Americans searching for work. About 1.2 Americans competed for each job opening in March. That’s down from the February reading of 1.3 and the pre-pandemic level of about 0.8.

To be sure, a phenomenon known as reallocation friction can keep companies from hiring even in areas with an abundance of jobless Americans. Experts have warned that the post-pandemic economy will be drastically different from that seen in early 2020. The types of jobs available to workers could be very different, and jobless Americans might need time to decide which sector to work in if they have to make such a pivot.

The JOLTS report provides more detail around what was largely an encouraging month for the labor market. The country added 770,000 payrolls as Democrats’ $1.9 trillion stimulus supercharged spending. The unemployment rate fell to a pandemic-era low of 6%.

While the April jobs report showed the recovery stagnating last month, other indicators have shown more promising trends. Daily COVID-19 case counts fell to an 11-month low on Sunday and are swiftly trending lower as vaccination continues. Filings for unemployment benefits have similarly declined over the past four weeks and most recently slid below 500,000 for the first time since March 2020.

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