Non-farm payrolls have disappointed over the past two months while average hourly earnings have surprised positively. These surprises likely reflect supply constraints pertaining to school closures as well as bonus jobless benefits often making it a better deal to stay home than to seek work.
These supply issues are unlikely to be resolved until September, when the Federal bonus payment ends and when the school situation hopefully returns to normal, meaning that low US jobless claims and strong job openings data are likely overstating coming non-farm payrolls growth figures. Some states, such as Alaska, Iowa, Mississippi and Missouri, have opted to end the bonus benefits already in June, perhaps making it possible to extract some signals from the developments in these states already from the June numbers.
What’s more, even if non-farm payrolls growth were to remain somewhat lacklustre, it does not mean that the labour market is not strong. For similar reasons, average hourly earnings are likely to be overstating wage pressures.
Unless the economy has shape-shifted due to the pandemic, there should be plenty of labour market slack. For instance, the employment-to-population rate among Black or African Americans remains four percentage points lower than its pre-pandemic rate. This is a statistic likely occupying many minds at the woke Federal Reserve, which seemingly has decided to include diversity, inclusion and equity into its mandate.
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