US Labor Market Is The Tightest Of The Post-War Era, Goldman Gauge Shows By Bloomberg

©Bloomberg. An employee loads an aluminum spool onto a truck at the Arconic plant in Alcoa, Tennessee, on Wednesday, March 9, 2022. Metals, including aluminum and copper, have reached record highs after Russia’s invasion amid fears of trade disruptions. Photographer: Luke Sharrett/Bloomberg (Bloomberg) — According to Goldman Sachs Group Inc (NYSE: ). Wall Street Bank economists have compiled a U.S. workforce metric that they say can better track wage increases — which are key to inflationary pressures — than other measures. They add up the total number of employees and the number of vacancies to estimate the demand for labor. For the supply, they count the working population, or workers and job seekers. The latest reading of the gap shows a 5.3 million surplus in labor demand versus labor supply — “the most overheated level of the post-war period, both in absolute terms and relative to population,” Jan wrote. Hatzius, Goldman’s chief economist, in a note Monday. Much of the continued strong employment growth likely to come in the coming months will come from people currently outside the workforce — something that will help narrow this gap between jobs and workers, Hatzius wrote. That will happen if Americans who live on savings are destocking, he said. “The bad news, however, is that this probably isn’t enough,” Hatzius wrote. “To reduce wage pressures to levels broadly in line with the Fed’s inflation target, we estimate the gap needs to be narrowed by at least half.” Fed policymakers are targeting inflation at 2%, and the most recent reading for the central bank’s preferred core measure was 5.4%. On wages, Friday’s jobs report showed 6.7% annual gains for manufacturing and non-managerial workers, the largest since 1982 after excluding the spring 2020 disruptions caused by the pandemic shutdown. Given the magnitude of the tightness, Hatzius warned of three possible consequences: Economic growth may have to slow down to the 1% to 1.5% range to curb inflation. measure that includes stocks and corporate debt “It could very well mean that the final fund rate is higher than our base forecast of 3%-3.25%,” he said, referring to where the Fed’s key rate — currently a range of 0.25 % -0.5% — – spikes after rate hikes Hatzius also noted that historically there has never been a labor market easing on the order of 0.6% of the workforce — “a share that currently equates to about 1 million” – – which had nothing to do with a recession. Equally alarmingly, the unemployment rate in the US – currently 3.6%, practically pre-pandemic levels – has never risen more than 0.35 percentage point in three months without a recession. Despite the alarming record, Hatzius takes heart from the fact that the sample size is small, with only 12 recessions in the US since the end of World War II. He also said periods in other major economies showed that moderate labor market deterioration can occur without economic malaise. Also encouragingly, there is little sign of the kind of financial imbalances in US households and businesses seen in the run-up to the 2001 and 2007-09 slumps. Still, “the broader point is that once the labor market is past full employment, the road to a soft landing becomes narrow,” Hatzius concluded. Read more: Fed’s Best Hope increasingly resembles a ‘semi-hard’ landing ©2022 Bloomberg LP

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