Covid caused huge shortages in the jobs market. It may be easing — but there’s another problem ahead

by | May 11, 2023 | Financial

Now Hiring signs are displayed in front of restaurants in Rehoboth Beach, Delaware, on March 19, 2022.Stefani Reynolds | Afp | Getty ImagesSince the onset of Covid-19, labor shortages have plagued major economies and intensified inflationary pressures, but economists expect this trend to finally abate this year.Central banks around the world have been tightening monetary policy aggressively for over a year in a bid to rein in sky-high inflation, but labor markets have by and large remained stubbornly tight.Last week’s U.S. jobs report showed that this remained the case in April, despite recent turmoil in the banking sector and a slowing economy. Nonfarm payrolls increased by 253,000 for the month while the unemployment rate was at its joint-lowest level since 1969.This tightness is reflected across many advanced economies, and with core inflation also remaining sticky, economists are divided as to when the likes of the Federal Reserve, the European Central Bank and the Bank of England will be able to pause, and eventually cut, interest rates.In the U.S., the Federal Reserve last week signaled that it may hit pause on rate hikes, but markets remain uncertain as to whether the central bank will have to nudge rates higher still in light of incoming data. Job openings in March fell to their lowest level in nearly two yearsHowever, Moody’s projected last week that the gap between labor supply and demand is expected to narrow across G-20 (Group of Twenty) advanced economies this year, easing the labor market tightness as growth slows with the lagged impact of tightening financial conditions and cyclical demand for workers recedes.In mid-2022, supply chain shortages that arose in the wake of the pandemic transitioned to gluts of goods and mate …

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