Labor market to be increasingly critical in U.S. economic outlook as stimulus fades: economist
"As the economy moves forward into the later months of 2021, federal aid will taper off and there will be an important focus on the ability of the labor market to generate ongoing strength in wages and salaries to support spending," economist Jack Kleinhenz said.
The labor market will play an "increasingly critical role" in U.S. economic outlook going forward, as the stimulus effect of federal aid fades away, National Retail Federation (NRF) Chief Economist Jack Kleinhenz said Wednesday.
"As the economy moves forward into the later months of 2021, federal aid will taper off and there will be an important focus on the ability of the labor market to generate ongoing strength in wages and salaries to support spending," Kleinhenz said in a newly published article.
"U.S. consumers remain in the mood to spend, but the labor market and job creation will play an increasing role in their ability to do so," said Kleinhenz, who has served as a member of the Bureau of Labor Statistics Data Users Advisory Committee.
Kleinhenz noted that official data shows that non-farm job openings rose to 10.07 million in June, a new record high, and that there were 9.48 million unemployed Americans, which speaks to the "tightness" of the labor market, with more job openings than people looking for work.
In retail, for example, there were 1.15 million job openings, but merchants were able to fill only 1.12 million of the positions, he said.
The NRF chief economist also noted that businesses across the economy are reporting that it is difficult to find the workers they need and have responded by raising pay, which "raises concerns" about inflationary pressures starting to build.
"The bulk of the recent upturn in U.S. inflation has been driven primarily by supply chain bottlenecks and low levels of inventories, but higher labor costs are often passed on to consumers and are considered a precursor of broader inflation," he said.
Looking forward, Kleinhenz said continued momentum in the job market will provide the income needed to support household spending.
"Meanwhile, the delta variant is on the rise and could impact spending for restaurants, travel and accommodations, delaying job recovery in those industries," he said, adding that early reports on consumer sentiment have underscored that there are rising concerns.
Latest data from The Conference Board released Tuesday showed that Consumer Confidence Index fell to 113.8 in August amid a Delta variant-fueled COVID-19 surge, hitting the lowest level since February.
The Institute for Supply Management (ISM) reported Wednesday that U.S. manufacturing sector expanded at a faster pace in August despite a Delta variant-fueled COVID-19 surge, while highlighting persistent supply-chain constraints and hiring difficulty.
The new surges of COVID-19 are adding to pandemic-related issues -- worker absenteeism, short-term shutdowns due to parts shortages, difficulties in filling open positions and overseas supply chain problems, which continue to limit manufacturing-growth potential, according to the ISM.
Noting that COVID-19 cases and hospitalizations represent a downside risk to the economic outlook, Kleinhenz said at this point, some disruption to retail sales is anticipated but at a "relatively modest level."