How severe is the US labour shortage?

Investors, economists and policymakers were shocked last month following a weaker-than-expected jobs report for April that showed gains of just 266,000 jobs compared to the 1m expected. 

Friday’s jobs report will offer an important update on the pace of the labour market recovery as well as fresh details about the severity of the supply-demand mismatch for workers.

Forecasts compiled by Bloomberg show economists anticipate that some of these distortions will have started to work themselves out. They are expecting 665,000 to have been added in May, with the unemployment rate falling from 6.1 per cent to 5.9 per cent.

Debate has swirled since the April numbers about the potential causes for the slow uptick in employment data. Possibilities include employee concerns about catching Covid and broad labour shortages stemming from overly generous government benefits. More than 20 Republican-leaning states have announced an early scaling back of support for the unemployed ahead of the September expiration, according to JPMorgan.

Luke Bartholomew, senior monetary economist at Aberdeen Standard Investments, is among those who believe any labour shortages will “disappear very quickly” as enhanced government benefits are phased out, stimulus checks are spent and coronavirus vaccination campaigns progress.

“If companies want workers back sooner then they will probably need to pay them more to overcome the natural reluctance people feel at this stage of the pandemic,” he said. “Doing so will indeed increase inflation in the short term.” Colby Smith

How fast will prices rise in Europe as the recovery gathers pace?

Europe’s recovery from the pandemic, rising energy prices and higher input costs are expected to have pushed consumer prices up across the eurozone, putting pressure on the European Central Bank to respond ahead of its next policy meeting on June 10.

Annual eurozone flash consumer price inflation, released on Tuesday, is forecast to have increased to 1.9 per cent in May, according to economists polled by Reuters. This would be a 0.3 percentage points up from April, the highest rate in almost three years and close to the ECB’s target of close to 2 per cent

Fabio Balboni, senior economist at HSBC expects the ECB to revise up its near-term inflation forecast at the upcoming meeting, while data from the US show strong upward pressure on consumer prices pointing to similar trends across the Atlantic.

Other data releases show that price momentum has been building across the eurozone. The Flash Markit purchasing manager survey for Germany showed that in May input prices across manufacturing and services rose at the fastest pace since the data began in 1998.

In May, selling price expectations also rocketed to a record high among manufacturers and rose sharply for services, according to the European Commission monthly business survey.

Line chart of Net balance, % showing Selling price expectations among eurozone manufacturers soared in May

But Jack Allen-Reynolds, senior Europe economist at Capital Economics, thinks these effects are temporary and that the “underlying pressures, driven by domestic demand, will remain subdued for a long time”.

Earlier in the month Philip Lane, the ECB’s chief economist, also dismissed fears that supply chain disruptions and the associated rising input costs would be a threat to consumers. “When you have an unplanned bottleneck there is going to be some price action, but that is not inflation,” he said in a webinar. Valentina Romei

Will Opec+ change its oil production targets?

When Opec and its allies including Russia sit down for their monthly meeting this week they will be happy to see oil prices are still trading not far away from $70 a barrel.

Opec is set to add a few more barrels back to the market in July, with the market still looking relatively healthy. This meeting is expected to pass without any major changes to that plan of only slowly returning the supply they cut at the height of the pandemic.

Despite India, one of the great engines of oil demand growth, still suffering under restrictions designed to curb the worst effects of the pandemic, and despite the prospect of more Iranian crude returning to the market should it reach a new nuclear deal with the US, the oil market has proved remarkably resilient.

A month ago oil prices were at roughly the same level. Helping that stability, traders still expect a demand recovery to accelerate later this year, as the rollout of vaccines in much of the developed world helps economies get back on to a steadier footing, increasing demand for oil. David Sheppard



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