I attended the National Association for Business Economics Annual Conference last week, and I wanted to share a few highlights.
On Recession: Unfortunately, consensus is rising that there will be a recession in the next 12 months, likely starting in the winter. Europe is at the highest risk, but the U.S. is also more likely than not to face recession. The silver lining to this cloud is that consensus also suggests the recession will not be severe. There are so many strong parts of the economy that insulate us against a major decline. That said, you should expect and be prepared for some overall economic pain.
On Labor Force Shortage: Businesses and economists alike have been taken by surprise with how limited the recovery in work force is. Leading into the pandemic, the U.S. labor force was growing at about 1.5 million workers per year. In theory, 2.5 years removed from the start of the pandemic, the labor force should be about 4 million workers larger than it was. But despite abundant job availability, worker supply has stalled out at about the same level as January 2020.
A few reasons contribute to this:
- 120,000 prime age workers have died from COVID, and data suggests at least 500,000 workers are out of the labor force due to long COVID.
- Immigration was low during the first two years of the pandemic; we are short millions of immigrants as a result.
- Retirement. More workers retired, and fewer workers have exited.
These trends have *some* reversal potential. Immigration levels are normalizing here in 2022. We greatly hope medical advancements and time will restore health to those suffering long COVID. And it's likely the revolving retirement door will start to turn more normally as older folks grow more comfortable with current pandemic norms and as they find favorable opportunities. That said, it will likely be the recession that causes worker supply to come back into balance (and likely overwhelm) demand for workers rather than a supply recovery.