Labor Hoarding Could Impact August Payrolls

Staff shortages remain in pivotal sectors like education and child care.

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Diane Swonk

Diane Swonk

Chief Economist, KPMG US

+1 312-665-1000

 

Payroll employment is expected to rise by 300,000 in August after surging 528,000 in July.  Chronic staffing shortages and an elevated number of COVID infections may mean that hotels, resorts and restaurants decide to hold onto seasonal hires longer this year. That would keep hiring in the leisure and hospitality sector elevated in August, a period when seasonal layoffs usually start to pick up. The largest layoffs usually occur in September, after the Labor Day holiday.

We saw similar phenomena in the retail sector in January. Large retailers held onto more of their holiday hires than usual during the first Omicron wave to cover acute staffing shortages. That made it appear that hiring in the retail sector picked up at the start of the year; it actually fell less than usual.  

August is a tricky month for measuring hiring in education and childcare sectors. Both tend to pick up in August and September as schools reopen. A surge in retirements and lagging pay have left schools and daycare centers with acute staffing shortages. Many school districts complained of bus driver shortages again this year. 

Hiring in health care and professional services is expected to remain strong, while hiring in the manufacturing and construction sectors fades a bit. Hiring by doctors, dentists and hospitals in urban areas is driving the gains in health care; nursing homes and mental health care facilities remain grossly understaffed. 

Hiring in professional services was being driven by strong demand for accountants earlier in the pandemic; now hiring is concentrated in scientific research and development services. 

Average hourly earnings are expected to rise 0.4% from July, or 5.3% from a year ago in August. That is slightly behind the annual pace of average hourly earnings growth we saw in July. Hours worked per week have come off the highs of 2021 but remain well above levels before the pandemic. Hours worked per week in professional services remain elevated, while hours worked in low-wage jobs in the leisure and hospitality sector have come off the highs we saw in the spring of 2021.  

Separately, the unemployment rate is expected to hold at 3.5% in August. That would match the record low we hit in July and take us back to the lows hit prior to the onset of the pandemic in February 2020. The participation rate is expected to hold at 62.1%, 1.3% below the peak hit in February 2020. About half of the deterioration in participation can be attributed to the aging of the baby boom and early retirements; the other half is a blow to prime-age workers without a bachelor’s degree. We could see more of the latter than the former returning to the workforce as we get into the fall.  

We will be watching the ranks of multiple job holders, which are still below the peak hit in February 2020. The stress of inflation, coupled with a slowdown in the upward pressure of wages for lower paid workers, has made it harder for workers to make ends meet with one job. Defaults on utility bills have surged in recent months as the costs of cooling and heating homes have soared.

Hiring in health care and professional services is expected to remain strong, while hiring in the manufacturing and construction sectors fades a bit.
Business investment is poised to contract in the overall GDP data in the second quarter.