Thursday, July 7

3 reasons why the ongoing disconnect between high unemployment and available job openings could continue long-term, according to Morgan Stanley’s wealth-management CIO

Lisa Shalett, Chief Investment Officer, Wealth Management at Morgan Stanley

  • Lisa Shalett explains the disconnect between robust hiring demand and elevated joblessness in a new blog post.
  • The Morgan Stanley wealth management CIO says there are three factors that could lead the disconnect to persist.
  • Those factors include accelerated retirements, a widening skills gap, and geographic imbalances in the labor pool.
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The number of job openings in the US reached a record high of 9.3 million in April. Meanwhile, the unemployment rate remained elevated at 5.8%, according to data from the US Bureau of Labor Statistics.

The disconnect between these two figures has been the source of debate for many economists and market watchers.

Now, Morgan Stanley is shedding some light on why the US economy might be seeing such a dynamic.

In a blog post this week, Lisa Shalett, Morgan Stanley’s chief investment officer (CIO) of wealth management, described three reasons behind current high levels of unemployment amid record available job openings. She details the challenges that both employers and job seekers are facing in today’s tight jobs market.

Shalett says job seekers are struggling with public health concerns, the availability of childcare, and the seasonality of school re-openings, while also noting that some experts believe pandemic-related federal aid may dissuade some unemployed from returning to work.

On the other hand, Shalett says employers are struggling to find talent with some manufacturers even cutting shifts to avoid operating at a loss.

Shalett goes on to reveal three main reasons why there may be an ongoing disconnect between high unemployment and available job openings.

Accelerated retirements

The first factor Shalett cites in her blog post is accelerated retirements. According to Morgan Stanley’s chief US economist, in the 12 months to February 2021, the US retiree population jumped by 2 million.

Shallet said this trend can’t be explained by aging alone and may lead to a persistent gap between unemployment and job openings.

A widening skills gap

The second factor is a widening skills gap between what employers need and what employees have to offer.

The CIO said this suggests there is a tighter labor market than headline unemployment data indicates, as companies compete for a smaller field of qualified workers.

According to a Beyond Skills survey of 1,000 executives across several sectors, more than 60% of business leaders believe the events of 2020 have widened the skills gaps in their businesses, per City AM.

Geographic imbalances in the labor pool

Finally, Shalett highlighted “pandemic relocations” that have become permanent as a source for geographic imbalances in the labor pool. She said these have only added to the disconnect between the number of jobs on offer and the number of job seekers.

Nearly 36 million people changed addresses in 2020 alone, according to data from the US Postal Service. And a CBRE analysis of found that “net move-outs from high-cost coastal cities increased.”

Shalett warned clients in her post that if these factors continue to foment a tighter labor market that it could cause inflationary pressure.

She said investors should watch average hourly earnings, total real income, and the Employment Cost Index for evidence that “sticky inflation” is emerging.

The CIO also recommended investors “emphasize security selection, with a focus on companies that have pricing power and levers to sustain profit margins in the face of growing headwinds.”