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The U.S. economy will not achieve full employment – a key benchmark the U.S. Federal Reserve has said it will use in deciding when to raise interest rates – until at least the fourth quarter of 2022, Fitch Ratings predicted in a note to clients.
To reach full employment, the economy needs to add about seven million jobs, Fitch estimates, but three obstacles have to be overcome to get there, the note cautioned.
First, about 30 percent of jobless Americans have been out of work for more than a year and the proportion is growing, Fitch said.
People out of the labor force that long are likely to become permanently unemployed, studies have shown. Full employment depends on finding enough berths for those long-term out-of-workers to bring the number down from its current 1.8 percent of the total available workforce to its pre-crash level of 0.5 percent, Fitch calculates.
Second, the prolonged shutdown will permanently reduce job opportunities in some sectors – retail store clerks, for example, as more shoppers have migrated online. Other sectors, such as manufacturing, will need more skilled workers than now exist. Matching and training workers for new careers take time.
Third, some of those ex-workers will never come back into the labor force, Fitch warned.
This seems particularly true among workers age 55 and older.
This group’s rate of participation in the labor force plunged to 38.4 percent when the economy shut down and sat at 38.3 percent in April this year, Fitch found. There has been no job recovery among that group, while all others have recouped at least half of the jobs the shutdown stole.
This trend among older workers is not due to early retirement. About 1.24 million U.S. workers retired in 2020, according to the U.S. Social Security Administration, far fewer than the 1.37 million who retired in 2019.
That figure “could signal permanent discouragement from the labor force among older workers,” Fitch warned.
TREND FORECAST: The fewer people in the workforce, the higher wages will be paid. It’s simple supply and demand. However, with more people out of work, there will be fewer people in the consumer market, which will drag down GDP growth… and more pressure for government social services, which, in turn, will increase government debt.