James McCann, Deputy Chief Economist at Aberdeen Standard Investments gives us his thoughts ahead of the US labor market report released next Friday (4th June).
“The main focus for markets next week will be the US labor market report out on Friday. There are eight million fewer people in work now compared to before COVID, even as the number of job openings shows that there is plenty of work to go around. The jobs are there, people just do not want them, for the time being.
“People appear reluctant to return to work. While this reticence should fade as Covid cases fall, vaccinations increase and public health restrictions ease, we might see companies need to increase wages in some jobs and sectors in the near term to incentivize people to return. This may feed into the anxiety of investors around runaway inflation. The Fed isn’t doing much to arrest that anxiety. They remain convinced that current price pressures will be transitory and will fall back before they pose a problem. To some investors, that looks at best like largesse. But it is sensible for them to be at least to trying to look through the noise at this stage. After all, many of the same investors have in the past accused the Fed of being too reactionary to short term moves in markets.”
“Next week’s report is unlikely to stem the market’s anxiety though. Hiring will probably be fairly subdued because many of the factors keeping workers away remain in place. But, and this is the important thing, they won’t be for long. This dynamic of a shortage of workers will pass as stimulus measures roll off, more people are vaccinated and the pandemic in general continues to retreat. Now is the time for a steady hand.”