- Oct. 13, 2021
-- Energy Crunch
Worsening Labor Shortages
- Adding to supply-chain disruptions – The price action in commodities stole the spotlight last week, contributing to the elevated volatility in equity and fixed-income markets. Among the eye-catching moves are that oil rose to a seven-year high, natural gas prices briefly spiked to 2008 levels after having doubled this year, and coal rose to record highs1. The rocketing prices have triggered an energy crunch in Europe and China, hitting factory output and adding another complication in the long list of supply-chain issues that are holding back the global economic recovery.
- An overshoot in oil prices is possible, but unlikely to last – The recent parabolic rise in coal and natural gas prices has sparked fears that a similar move could be in the cards for oil. We believe that prices will stay supported as oil demand continues to recover from the pandemic. However, the rise in prices is likely to prove self-limiting, as high prices will incentivize increased production.
Source: 1. Bloomberg
- September job gains disappoint, but recovery on track – The U.S. economy added 194,000 jobs in September, the smallest gain this year and well below estimates. More encouraging was that the August numbers were revised meaningfully higher and the miss in private-sector jobs was less severe. Employment in leisure and hospitality increased by 74,000, even though it remains about 10% below its pre-pandemic level1. The biggest detractor and disappointment came from the 180,000 decline in education (90% in the government sector), which was likely impacted by seasonal factors. With job openings at record levels, the expiration of pandemic benefits, and improving delta-variant trends, we think that hiring will pick up in the coming months, but the path towards returning to full employment will not be a straight line.
- Workers not in a rush to rejoin the workforce – Despite the disappointing job gains, the unemployment rate fell more than expected, to 4.8%, a new post-pandemic low. However, that was driven by an unexpected drop in the labor-force participation rate, indicating that more people left the workforce. With labor shortages appearing to worsen, employers are boosting pay as they compete to attract workers. Average hourly earnings (wages) rose 4.6% from last year and 0.6% from the previous month, the strongest advance since April1.