Commonwealth

Yesterday, we looked closely at how the labor market has changed over the past couple of decades. Briefly, the number of job openings kept growing with the economy, while the number of unemployed people stayed roughly constant. As a result, the number of jobs available per unemployed person hit new highs and the number of excess workers—available workers less the job openings—went into deficit. Before the pandemic, there were more job openings than workers to fill them, for the first time. Currently, although the pandemic changed things temporarily, the labor market is back to worker shortage. As we look ahead to the next decade, will this trend continue?

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So, let’s get back to the labor market discussion we started last week. Today, I want to take a deeper look at the key assumptions we referenced the other day, specifically that there will end up being more workers than jobs. As we discussed then, this has been the case for decades. But, in recent years, that dynamic has been changing as employment rose to new highs and unemployment dropped to multi-decade lows.

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Among last week’s important economic data releases, May’s housing sales, durable goods orders, and personal income and spending reports stood out. The pace of existing home sales fell for the fourth month in a row, as limited supply and rising prices hindered sales. Once again, this week will be packed with updates, including a look into consumer and manufacturer sentiment and the release of the June employment report.

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Today, I’ll take a break from focusing on the labor market to look at a related, but shorter-term issue—shocks versus trends. This topic has current relevance, as well as wider applicability, so it is worth thinking through.

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With the ongoing improvement in the medical news, this will be the last of the regular coronavirus updates. I had hoped it would also be the end of the need to cover the pandemic as a separate topic. But with the potential rise of the delta variant of COVID and the possibility of new outbreaks, that may not be the case. I will be providing updates as needed in the future.

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At the start of 2020, I did a piece on inflation versus wage growth where I looked at a bunch of different indicators. The short version of that post is that, for working people, wage growth had generally been higher than inflation over the preceding five years or so.

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