This week in Bidenomics: Shortages bite
Nobody saw this coming a year ago, when coronavirus shutdowns caused an abrupt recession: A shortage of workers and goods is now holding back the economy.
Economists expected employers to create around 1 million new jobs in April, and the unemployment rate to drop. But they added just 266,000 jobs, and the unemployment rate rose. A big part of the explanation: widespread shortages—including workers—that have cut into production.
“The strong demand for workers we see is meeting labor shortages,” Rick Rieder of investing giant BlackRock explained in an analysis. “There are many segments of the economy where the primary employment problem is not a lack of demand, but instead rather extreme labor shortages.”
Compounding these apparent labor shortages is an undersupply of semiconductors, which has forced many automakers to idle assembly lines and led to a loss of autoworker jobs, even though demand for cars is robust. There’s not enough lumber, either, which has led to skyrocketing prices and forced some furniture makers to curtail production and lay off workers. Even chicken is scarce, pushing the price of tenders and sandwiches higher.
These might sound like good problems to have, since they reflect an economy recovering faster than many businesses and consumers expected last year. Automakers, for instance, expected demand to be weak in 2021, which is why they didn’t order enough chips and now can’t build all the vehicles consumers want to buy. But they still represent risks for President Biden and his fellow Democrats, who are pushing for more gargantuan spending bills later this year.
Reports of labor shortages are a complicated phenomenon, especially given that employment is still 8 million jobs short of where it was before the pandemic. In theory, there should be plenty of workers for open jobs and companies should be willing to train workers if they don’t have the needed skills. But that doesn’t appear to be what’s happening. In a monthly small-business employment report, the portion of firms saying they can't fill job openings is the highest on record, in data going back to 1974.
With many schools still not back to normal, parents who want to work still have to deal with kids at home. That clearly seems to be preventing women in particular from going back to work. Biden has pledged a return to normal, and workers will rightly hold him accountable if ongoing disruptions prevent them from rejoining the labor force.
Then there’s the touchy issue of whether unemployment benefits, including an extra $300 per week in the relief bill Congress passed in March, are so generous that workers can earn more collecting benefits than working at a job. It stands to reason some people are doing this. What’s not clear is whether this behavior is widespread enough to crimp the entire economy.
A political battle has broken out nonetheless. The Republican governors of Montana and South Carolina are ending federal unemployment benefits for their residents, claiming they’re causing labor shortages. Montana even plans to institute a $1,200 bonus for workers rejoining the labor force. Other states may take similar measures.
After the April job numbers came out on May 7, the US Chamber of Commerce, corporate America’s principal lobbying group, began a campaign to end the federal unemployment benefit program early. The $300 checks are supposed to go out through the first week of September, but the chamber says 25% of recipients are earning more in government payments than they’d earn from working. Congress won’t end the program, but critics of the Democrats’ largesse now have a bit of ammunition.
For perhaps the first time as president, Biden is on the defensive regarding his handling of the economy. He rejected the chamber’s claim in remarks on May 7, and said the weak job numbers show workers need more help, not less. There’s no single right answer, but watch Biden’s approval numbers to see if more voters begin to think his aid programs go too far.
Some, maybe most, of these problems will sort themselves out. Product shortfalls that push up prices often lead to more supply, since there’s more money to be made. That’s how supply and demand rebalances itself. But in the meanwhile, inflation caused by supply-demand mismatches is making many things more expensive. The housing market is a particular concern, because that’s one area where supply is constrained by permitting issues and other externalities. Builders can’t just slap up more houses when the demand materializes.
Biden will have many ups and downs before voters render their first judgment on his performance in the 2022 midterm elections. That’s plenty of time to resolve the current disruptions in the economy. But surprises happen, and a year from now things will probably be different than we expect them to be right now.
Rick Newman is the author of four books, including "Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman. You can also send confidential tips, and click here to get Rick’s stories by email.
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