- 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.
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.”