Willie and my blog on the latest employment numbers is up. The title poses a question and the blog does not completely answer it because I’m a bit confused right now. The basic story in a short thread. https://www.piie.com/blogs/realtime-economic-issues-watch/us-labor-market-running-hotor-not

1. Employment below where it should be. Jobs 10m short of trend. Employment rate 3.2pp below where it should be.

We have a long way to go.

2. The shortfall recently seems to be more about labor supply than labor demand so not a lot of slack. (People still worried about virus, schools closed, UI payments, etc.)

Evidence: rapid wage growth, record/near record openings/quits, high hours, low participation.

3. Normally not a lot of slack would mean not a lot of room for improvement but this is a very different situation. We can expect very large increases in labor supply and labor demand as everything gets safer.

4. We outline four scenarios going forward: three downside (overheating, job-less and pandemic return) and a happy one (uncomfortably hot summer but pleasantly cool fall). I lean towards the last but am still confused.

Addendum: All of the above was my view even before seeing the numbers. How much to update? I think only a little given that the numbers are from a month ago, are noisy/revised and many other labor market indicators to draw on.

But if anything the fact that wage growth was so high (0.7% for private was the highest for any pre-pandemic month since the data started in 2006) lends some additional weight to the demand outstripping supply story.

(Note, this is affected by composition, may be biased down.)