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Federal Reserve officials have for months blamed a dwindling supply of US workers for elevated inflation levels. During his December press conference, Fed Chair Jerome Powell said that Covid-related deaths accounted for a large chunk of the structural labor shortage in the economy.
That’s why some economists and health care advocates were surprised on Wednesday when central bankers decided to no longer list public health readings among the data points they’ll consider in assessing economic conditions and prescribing monetary policy changes going forward.
What’s happening: During his February press conference, Powell, who tested positive for Covid just last month, clarified the Fed’s reasoning.
“I personally understand well that Covid is still out there but that it’s no longer playing an important role in our economy,” he said. “It doesn’t really need to be in the Fed’s post meeting statement as an ongoing economic risk, as opposed to a health issue.”
It’s true that the United States has largely moved on from the deep economic downturn triggered by early-Covid business closures and stay-at-home advisories which led the Fed to cut interest rates and purchase massive amounts of debt securities to help incentivize financial markets and spending.
But it’s premature to say that Covid is no longer an economic issue when long Covid has such a significant effect on America’s workforce, economists and health care officials say.
Long Covid, which stems from a Covid-19 infection, is considered a chronic illness that is sometimes debilitating. As many as 30% of Americans, about 23 million people, develop long Covid after a Covid infection, said the US Department of Health and Human Services in November.
“The bottom line is that long Covid is why the labor force participation rate has not recovered to pre-pandemic levels, even in a situation with solid wage growth,” wrote Torsten Slok, chief economist and partner at Apollo Global Management, in a recent note.
“These ‘missing’ workers are why companies continue to report labor shortages and why wage inflation remains so high,” said Slok. “This continues to be a challenge for the Fed as the FOMC [Federal Open Market Committee] tries to get inflation quickly back to the Fed’s 2% inflation target.”
Fed officials have expressed concern that a root cause of inflation growth is our low labor participation rate and the imbalance of worker supply and demand which leads to an increase in wages and higher prices.
A new analysis of workers’ compensation claims in New York State found that around 18% of long Covid patients still hadn’t returned to work more than a year after contracting the virus. More than three quarters of them were under 60.
“Long Covid has harmed the workforce,” said the report, compiled by the New York State Insurance Fund. These findings, “highlight long Covid as an underappreciated yet important reason for the many unfilled jobs and declining labor participation rate in the economy, and they presage a possible reduction in productivity as employers feel the strains of an increasingly sick workforce.”
Another academic study found that about 7% of US adults, or 19 million people, still suffer from long Covid.
Caregiving for those suffering from Covid or long Covid is also affecting the labor imbalance, said Giacomo Santangelo, an economics professor at Fordham University.
If families don’t have the ability to hire home health care workers, then people will be forced to leave their jobs and become caregivers, he said. The effect of taking time off of work for caregiving, he said, “is something we should expect to see putting stress on the labor market going into the future.”
The bottom line: “Ultimately long covid is a key reason why the Fed will have to keep the Fed funds rate elevated for an extended period,” said Slok.
Fourth quarter Big Tech earnings have come and gone. Here’s what you need to know, according to CNN Business reporters Clare Duffy and Catherine Thorbecke.
Facebook is back-ish: Facebook-parent Meta on Wednesday posted its third straight quarterly decline in revenue and a 55% drop in profit for the final three months of 2022.
But that didn’t bother investors. Meta’s stock climbed 23% in trading Thursday after the social media giant appeared to alleviate investors’ concerns about its focus and investment plans. It pledged to focus on “efficiency,” lowered its forecast for capital expenditures in the year ahead and announced plans to boost its share repurchase plan by $40 billion.
Oh yeah, and CEO Mark Zuckerberg made out pretty well for himself. He’s more than $12 billion wealthier today than he was on Wednesday morning.
Apple is hurting: Apple’s revenue fell 5% in the final three months of last year to $117.2 billion, a rare decline for the company and significantly worse than Wall Street analysts had expected.
The drop marks the first time Apple
(AAPL) has reported a year-over-year revenue decline since 2019.
The iPhone maker’s profits also sank more than 13% compared to the year-ago quarter to nearly $30 billion. Shares of Apple fell as much as 4% in after-hours trading Thursday.
Google is too: Google-parent Alphabet reported a steep decline in profit and nearly flat revenue growth for the final three months of last year, as the company confronted increased competition in the digital ad market and a pullback in advertiser spending due to economic uncertainty.
Shares of Alphabet dropped around 4% in after-hours trading Thursday immediately following the report.
“We have significant work underway to improve all aspects of our cost structure, in support of our investments in our highest growth priorities to deliver long-term, profitable growth,” CFO Ruth Porat said in a statement alongside the earnings report.
Alphabet last month said it would lay off 12,000 employees in an effort to refocus on the company’s core business.
But the company indicated sales for the current quarter could be lighter than analysts had expected. Amazon said it expects revenue for the quarter ending in March to be between $121 billion and $126 billion, compared to analysts’ estimates of $125.1 billion.
Shares of Amazon fell nearly 4% in after-hours trading Thursday.
It’s been a long week full of earnings reports, new economic data and central bank decisions — but it’s not over yet. The first US jobs report of 2023 is expected out Friday morning.
Economists estimate that 185,000 positions were likely added in January, according to Refinitiv.
That would be a big drop from the 504,000 jobs added in January 2022, reports my colleague Alicia Wallace.
Beyond the headline numbers of unemployment and hourly earnings, here are some other areas of the jobs report that economists will scrutinize Friday morning.
Average weekly hours: “Typically, in good times, the workweek tends to be somewhere between 34.3 and 34.6 hours on average, and somehow it’s slowed all the way down to the bottom end of that range,” said Julia Pollak, senior economist with ZipRecruiter. “If it continues to deteriorate, that would suggest weakening demand for labor.”
And usually, when demand gets weak, hiring stalls and layoffs and job losses follow, she said.
Temporary help: As businesses recovered from the pandemic, they’ve increasingly relied on staffing agencies and contract employees. Temporary and contract hiring can show where businesses expand and reduce their workforce at the margins, said Sarah House, senior economist at Wells Fargo.
“The fact that we see that paring down suggests that the demand backdrop is starting to soften, and maybe they just don’t see the reason to hire and expand as much as they had previously,” House said.
Workforce participation: The imbalance of labor demand and worker supply has been consistently highlighted by the Fed as a potential sticking point in its efforts to lower inflation.
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