What caused biggest jobs miss on record?

In the run-up to the US employment report, the forecasts of both economists and Wall Street analysts had migrated higher and pointed to an incredibly strong job creation number for April. What materialised, however, was a huge disappointment that constituted the biggest data miss on record. While firm conclusions about the reason will have to wait for more data over the next few weeks and months, the available partial evidence suggests possible stress and strains in the labour market’s ability to match workers to what seems to be an ample demand for them.
The increased expectations — with the median forecast calling for 1 million new jobs within an unusually wide range of 700,000 to more than 2 million — did not happen in a vacuum. One economic data release after another, as well as corporate observations during quarterly earnings season, pointed to a “red hot” economy (using Warren Buffett’s description) in which many employers are looking to hire. This is also consistent with two other labour-market indicators: weekly initial jobless claims, which fell last week to below 500,000 for the first time since the outbreak of Covid-19, and the Job Openings and Labor Turnover Survey, or JOLTS, which shows a growing number of unfilled job vacancies.
The huge data miss — the Bureau of Labor Statistics reported only 266,000 new jobs in April, or just about a quarter of the median expectation — could be due to three broad factors: A deficiency of effective demand for labour; a problem in fitting available labour supply to demand; and data issues. Given available evidence and analyses, it is hard to argue that the problem is on the demand side. If anything, there is solid and increasing demand for workers in an expanding range of sectors. The economy is reopening, consumption is surging, unusually high average household savings are being deployed and, with solid balance sheets, the average employer seems eager to expand the workforce.
The supply side seems much more of an issue, but the exact reasons are not clear yet. Moreover, some of the possible explanations are short term in nature while others involve more protracted and slower-to-solve challenges. Among the explanations being considered, some point to a changing economy in which skill mismatches are likely to become worse. Others argue that generous unemployment insurance benefits are acting as a disincentive for some workers. Importantly, there are also the problems of inadequate child care and closed schools hampering those wishing to return to work.
The third main possible explanation — involving data compilation and reporting, including the possibility of distorted seasonal adjustments — would be the most benign by far. Such issues tend to sort themselves over time and indicate nothing worrisome about the functioning of the labor market. While firm conclusions will be possible only with more data, the weight of available (though partial) evidence supports the supply-side explanation. Should this indeed prove to be the case, the implications for the economy and policies could be consequential.
A less-responsive labor market would hold back an inclusive recovery and increase inflationary pressures. Unless supply becomes more flexible and agile, the US would face a lower ceiling on the level of sustainable and inclusive growth. It also highlights why President Joe Biden’s administration is correct in including human-related measures, such as child care and early education, in its infrastructure initiative.

—Bloomberg