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Labor supply: Businesses ‘are still going to be scrambling into 2022’ for workers, economist says

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S&P Global Ratings U.S. Chief Economist Beth Ann Bovino joins Yahoo Finance Live's Zack Guzman to dissect the November jobs report data in relation to issues such as the labor shortage and supply chain crunch.

Video transcript

- I want to shift over, though, to the other thing that maybe is not when it comes to the jobs numbers we got, as I said, less than half than what economists were expecting, though the unemployment rate did dip. Largely, that might be due to a lower labor force participation rate. And for more on all of that, I want to bring on Beth Ann Bovino. S&P Global Ratings US chief economist joins us here. Appreciate you coming on here to chat. Happy Friday.

I mean, when we look at this report, obviously always tough to look at these things in isolation, so when you kind of pair it with the other data we've been getting, what does it say to you about where we are in this recovery, particularly when we hear from Fed Chair Jerome Powell talking about some of these issues still persisting into next year?

BETH ANN BOVINO: Sure. Well, the half fold take is that unemployment rate that dropped to 4.2%. Half of that was tied to people coming back to the workforce. Half of that was people who were unemployed who got a job. Those people that came back to the workforce, that is much-needed because the labor participation rate is that still at a 45-year low, so we need all we can get.

On the half empty side, you pointed it out, that jobs number was half what we had expected. And if we kept at that pace of about 210,000 per month, that means the US wouldn't regain the jobs lost since the pandemic until 2025.

- Yeah, and it's one of the bigger things too. I mean, when you think about the forecast for jobs pre-pandemic, still about 5 million jobs short of it. So I mean, obviously Omicron not going to be a beneficiary here in terms of hiring, you would assume. So I mean, when you look at maybe the longer-term trajectory and just how long it's taken for the US economy to recover here, I mean, what is the scarring like in years ahead given the fact that we've had to spend quite a bit to kind of manage the last couple of years?

BETH ANN BOVINO: Well, the cost in terms of-- we're talking about the labor-- take a step back. We're looking at part of the reason why there's an issue in terms of the labor market. A lot of that is tied to the pandemic. Even the people who left who retired early probably retired even earlier than they had planned to because of the pandemic. And when you look at the group of who are stayed out, it's largely prime age workers who basically have dropped out.

Now in terms of the overall question of supply chain factors in terms of the US economy, we believe it's shaved almost 2% off of growth in the United States this year and a bit in the next year. Again, still, I guess, on the positive side, the US is still coming in at a 37-year high for growth this year.

- Yeah, but still it bears repeating. I mean, if you guys are trimming growth forecasts, right, 3.9% for 2022, at a time when you have Fed Chair Jerome Powell talking about accelerating the taper and coming off an accommodative stance-- I understand that, you know, things do look like they've improved quite a bit from earlier in the pandemic.

But what do you make of maybe that decision now at a time when there are so many questions around Omicron and whether or not things could get worse?

BETH ANN BOVINO: Well in terms of the questions of Omicron, that certainly-- in my mind, that's going to slow down the labor participation rate even further. So the businesses who are scrambling to try and get workers, they're going to still be scrambling into 2022. That there's very much likely the case there. In terms of the Fed, and what the and I believe in part this is correct, is that the US economy has really learned to adapt to the virus and has been growing with the various variants, and that's a positive.

I think that's why the Fed wants to move. Now, I don't think they're going to move that quickly as markets might expect. We do think that they're going to taper sooner than what they had earlier indicated, speed it up and finish to get to zero by early 2022. But that also means that they can raise rates sooner as well. But I still think they're probably going to be a little reluctant to raise as quickly as markets. Right now we have a first rate hike in September of next year.

- Yeah, lastly, I mean, when we talk about these issues persisting-- we were chatting with one of the largest apparel trade group leaders yesterday to get his take on maybe that some of these supply chain issues could persist into mid-year next year according to Jay Powell. When you talk about maybe how some of that might last longer, it seemed to him, this expert we chatted with yesterday, that those issues are going to persist longer, that mid 2020 actually-- mid 2022, rather, actually sounds a bit optimistic, especially when you think about the backlogs persisting building on one another as well as a potential labor dispute next year.

So, I mean, if we do have some of these supply chain issues persist longer than even the Fed's expecting, I mean, does that maybe add more pressure to the idea that they would stay accommodative for longer? Or how do you see markets reacting to maybe how the Fed could pivot further on down the road?

BETH ANN BOVINO: I think that the couple of points there-- And remember that Chair Jay Powell had just mentioned I guess a couple of days ago that he wants to retire transitory, and that's probably in line with what the other person that you spoke with had said, meaning that this doesn't look as transitory as the Fed had initially indicated. Indeed, when you look at the minutes, they were talking about many were participants were talking about the persistence in the inflation readings. And some of those factors are showing up in inflation expectation readings which probably spook the Fed.

That said, we are starting to see some softness in some of those indicators that we watch for price gains going forward. Very small, and in our mind, pretty much we think that this is going to continue into 2022. Now, I do think that what your colleague had mentioned, though, that little help with the drop in oil prices might give the Fed a little bit of cover when they decide to slowly start to tighten.

- Yeah, clearly the emphasis and attention being shifted back onto inflation. That dual mandate as jobs come in a little bit weaker, still a lot of experts saying it doesn't really change the story that much. But Beth Ann Bovino, S&P Global Ratings US chief economist, appreciate you coming on here to chat with us. Have a great weekend.

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