Expanded Labor Market Dashboard: Extremely tight labor markets and wage pressures

Click here for full report and disclosures

Click here for Expanded Labor Market Dashboard slides

*This report updates our enhanced labor market dashboard that builds upon the dashboard of 12 indicators originally developed by former Federal Reserve Chair Janet Yellen and includes data that reflects the objectives of the Fed’s new mandate of maximum inclusive employment (“An expanded labor market dashboard for assessing progress toward the Fed’s maximum inclusive employment objective”, July 15, 2021).

In Summary:

*Labor markets are extremely tight, with strong demand and labor shortages. In testimony before Congress last week, Fed Chair Powell acknowledged this assessment and said that the economy is either at or above full employment. The Fed never expected that inflation would rise significantly above its 2% average inflation target before its maximum employment mandate had been reached, but that is what has happened.

*In recent months, in the Establishment Survey, payrolls have continued to rise rapidly—an average monthly gain of 600k in the last five months-- and have recovered 90.4% of the 22 million pandemic declines in March-April 2020. Of the 2.1 million payroll employment shortfall, 1.5 million are in leisure and hospitality, and 0.3 million are in public education services. Payrolls in many other sectors have fully recovered and are now well above pre-pandemic levels.

*In the Household Survey, employment has also risen rapidly, recovering 95.5% of its 25.5 million pandemic decline, while unemployment has plummeted since 2021, and is now close to its pre-pandemic low. The recovery in the labor force participation rate has been slower, retracing only 65.6% of its pandemic decline. Consequently, the unemployment rate has fallen to 3.8%, near the lowest rate in five decades and below the Fed’s estimates of the longer-run natural rate of unemployment, so-called “full employment”. The employment-to-population ratio has recovered 86.9% of its decline.

*Inclusive labor market data indicates vast improvement for all groups. U-6, the broadest measure of unemployment, has fallen to 7.2%, a near complete recovery that puts it close to all-time lows. The unemployment rate of black people has fallen dramatically, and is close to an all-time low, narrowing the gap with white people, while the unemployment rate of Hispanic people is now at its pre-pandemic level.

*JOLTS data indicates that job openings, new hires, quit rates, and the number of job seekers per job opening are all at or near record highs, highlighting labor market dynamism, the mobility of labor, and the difficulty of businesses to retain workers. The NFIB survey of small businesses identifies difficulty finding skilled labor as business owners’ second largest problem behind inflation.

*Average hourly earnings (AHE) have accelerated but they have not kept pace with inflation, so real wages are declining. AHE of private sector production and nonsupervisory workers rose a modest 0.3% in February, resulting in a 6.6% yr/yr rise. Wages are expected to accelerate further with tight labor markets, rising labor productivity, and accelerating inflation and inflationary expectations (“OER, Services Prices, and Inflation” , January 18, 2022).

Mickey Levy, mickey.levy@berenberg-us.com

Mahmoud Abu Ghzalah, mahmoud.abughzalah@berenberg-us.com

Remarks regarding foreign investors. The preparation of this document is subject to regulation by US law. The distribution of this document in other jurisdictions may be restricted by law, and persons, into whose possession this document comes, should inform themselves about, and observe, any such restrictions. United Kingdom This document is meant exclusively for institutional investors and market professionals, but not for private customers. It is not for distribution to or the use of private investors or private customers. Copyright BCM is a wholly owned subsidiary of Joh. Berenberg, Gossler & Co. KG (“Berenberg Bank”). BCM reserves all the rights in this document. No part of the document or its content may be rewritten, copied, photocopied or duplicated in any form by any means or redistributed without the BCM’s prior written consent. Berenberg Bank may distribute this commentary on a third party basis to its customers.

Member FINRA & SIPC

This email and any files or attachments transmitted with it may contain confidential or privileged information and are intended solely for the use of the intended recipient. If you are not the intended recipient, please do not copy, retain, disclose or use any part of the message or its attachments. Please notify the sender immediately by return email and destroy or delete any copies. Dissemination or use of this information by anyone other than the intended recipient is unauthorized and may be illegal. Communications by email cannot be guaranteed to be secure or error-free. Emails and their attachments are subject to being intercepted, becoming corrupted, getting lost or delayed, or may contain viruses. Therefore, neither the sender nor Berenberg Capital Markets LLC (BCM) accepts any liability for any errors or omissions in the content of this message or problems in its transmission, including those arising as a result of its transmission over the internet.

BCM does not assume liability for the correctness and completeness of all information given and/or attachments contained herein. The provided information has not been checked by a third party, especially an independent auditing firm. BCM explicitly points to the stated date of preparation. The information given can become incorrect due to passage of time and/or as a result of legal, political, economic or other changes. BCM does not assume responsibility to indicate such changes and/or to publish an updated document. Any document(s) or attachment(s) is meant exclusively for institutional investors and market professionals, but not for private customers. It is not for distribution to or the use of private investors or private customers.

In light of upcoming regulatory changes, please be informed that BCM will continue to share information with you until unsubscribe@berenberg-us.com receives your termination/deletion request. For more information about the General Data Protection Regulation (GDPR) and our privacy policies please refer to https://www.berenberg-us.com/legal-notice. BCM reserves all the rights in this communication. No part of this communication or its content may be rewritten, copied, photocopied or duplicated in any form by any means or redistributed without BCMâs prior written consent.

The information contained herein and sourced may have been adopted from various news sources, for example, Bloomberg, Reuters, Street Account and various other sources. BCM does not claim accuracy, completeness, timeliness, suitability, or otherwise regarding all the information on the securities, stock markets, or developments referred to within. On no account should the Content be regarded as a substitute for the recipient procuring information for himself/herself or exercising his/her own judgments. BCM is not responsible for any recipient(s) use of this information. This Content is not a solicitation or an offer to buy or sell any of the securities contained herein. This information does not constitute a recommendation or take into account the particular investment objectives, financial situations, or needs of clients. Clients should consider whether any advice or recommendation in this Content is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. The price and value of securities which may be referred to in this Content and the income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain securities.