- The labor market is on track for a healthy rebound in the coming months, Fed Chair Jerome Powell said.
- One can expect “strong job creation” in the summer and heading into fall, he added.
- The labor shortage is temporary, and there’s reason to believe worker supply can exceed expectations, Powell said.
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The labor market is far from a complete recovery, but the country should see encouraging progress over the next several months, Federal Reserve Chair Jerome Powell said Wednesday.
Data tracking Americans’ return to work has been somewhat mixed throughout spring. On one hand, the economy is creating jobs at a steady pace. April and May both saw hundreds of thousands of payroll additions, although April was dismal in light of expectations of much bigger gains. Jobless claims are far lower than they were just months ago. And stronger wage growth suggests businesses are paying up to counter the labor shortage.
On the other, recent reports have fallen short of economists’ forecasts. Jobless claims unexpectedly ticked higher last week. And even at May’s more accelerated rate of payroll growth, it would take until July 2022 to fully recover all the jobs lost during the pandemic.
Despite the downside risks, Powell holds an unquestionably positive outlook for the labor market’s rebound. In a Wednesday press conference, the Fed chair said payroll growth should accelerate in the coming months as the pandemic fades further and more Americans rejoin the workforce.
“I think it’s clear, and I am confident, that we are on a path to a very strong labor market,” Powell said. “I would expect that we would see strong job creation building up over the summer and going into the fall.”
Projections from the Federal Open Market Committee support Powell’s sentiment. Policymakers expect the unemployment rate to slide to 4.5% by the end of 2021 from the May reading of 5.8%. The median forecast for 2022 unemployment was revised slightly lower to 3.8% from the March estimate of 3.9%. Officials then expect the rate to match its pre-pandemic low of 3.5% by the end of 2023.
Powell also downplayed concerns that a shortage of workers would permanently drag on the recovery. The previous economic expansion showed that labor supply can exceed expectations as the unemployment rate sits at historic lows, the Fed chair said. There’s no reason to think that dynamic won’t repeat itself, he added.
In the near term, Powell sees a handful of trends keeping Americans from returning to work. Childcare costs, COVID-19 fears, and enhanced unemployment benefits are likely dragging on labor-force participation, the central banker said, echoing comments from other Fed officials and lawmakers.
Another major hurdle could come from a simple skills mismatch, he added. Americans who could return to their previous jobs have largely done so already, Powell said. With those easy gains out of the way, a significant portion of payroll growth will have to come from Americans finding new work.
“This is a question of people finding a new job, and that’s just a process that takes longer. There may be something of a speed limit on it,” Powell said. “There’s just a lot that goes into the function of finding a job.”