A Tale of Two Americas

It was the best of times, it was the worst of times.

Either there are too many jobs in the U.S., or employment has yet to recover in the U.S. – both can’t be true.

And that seemingly contradictory set of circumstances has led to criticisms of U.S. President Joe Biden’s economic record yesterday as U.S. jobs data revealed millions of unemployed, yet businesses complain they can’t find enough people to hire.

Politicians from both sides of the aisle are using the same set of data to argue their own cause, with the Republicans claiming that overly generous job benefits are disincentivizing work, while the Democrats are using the same data  to suggest that the economy’s recovery is weak and therefore more stimulus is necessary.

Last month just 266,000 new jobs were created in the U.S., well short of the 1 million forecast.

Businesses say that the shortage of labor in food service, transport and construction is real and according to the National Federation of Independent Business, a small business group, 42% of small business owners say they cannot fill roles.

Some food service workers are reluctant to head back because of fear of exposure to the coronavirus, while others say that unemployment benefits have reduced the urgency to return back to work.

Whatever the reason, the data doesn’t lie, and the solution offered by liberals is not necessarily ideal either – pay more.

Inflation is already creeping into the economy with a progressive rise in commodity prices, a wage hike would only make matters worse, especially when the economic recovery is so fragile.

Data from the U.S. Labor Department suggests that some employers have already caved, with leisure and hospitality businesses having raised wages in April, despite earnings being well below pre-pandemic levels.

And that poses dangers especially for stocks enjoying the reflation trade, including cruise operators, restaurant chains and hospitality, which tend to be labor intensive.

While many investors had shunned tech stocks against a rising prospect of inflation, and poured into so-called “value” stocks, low employment numbers, and potential for stimulus and low rates to persist, means that the rally in these industries may not be as durable as hoped for.