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Economic Report: U.S. economy seen adding 450,000 jobs in October despite labor shortage

If they post it, will they come? Businesses have a near-record number of job openings, but they can’t fill them fast enough because of a major labor shortage.

Economists predict more people sought work and got hired in October after the weakest round of job creation in September in nine months.

Here’s what to watch in the latest U.S. employment report due on Friday.

Rebound in hiring

The US. probably created 450,000 new jobs in October, according to economists surveyed by The Wall Street Journal. That would mark a big improvement on the preliminary 194,000 gain in September that was the weakest of 2021.

Read: U.S. economy appears to be speeding up again as delta fades

The increase in hiring is likely to be widespread, with companies in the leisure and hospitality sectors benefiting the most because of the decline in “delta” coronavirus cases. Business has picked up again at restaurants, hotels and the like.

Even an increase of a half-million, however, isn’t fast enough to alleviate the biggest labor shortage in decades. Some 5 million people who had jobs before the pandemic still haven’t gone back to work.

Unless more people return to work soon, the labor shortage could gum up the economic recovery. Already some companies have had to scale back production because of too few workers.

Read: ‘My business faces a dire shortage of workers,’ owner tells Congress

Firms are also being forced to pay sharply higher wages and that’s contributing to the biggest spike in U.S. inflation in 30 years.

Stagnant labor force

The percentage of able-bodied people 16 or older who are working or looking for work sits at the lowest level since the early 1970s: Just 61.6% in September. What’s worse, there’s been no improvement for the past year.

What that means is millions of people are still missing from the labor force. The U.S. economic recovery can’t speed up much faster unless more Americans go back to work and ease the labor shortage.

Before the pandemic the share of people in the labor force was 63.4% and rising.

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economists say it’s only a matter of time before more people go back to work. Extra unemployment benefits put in place during the pandemic have ended. Schools are reopened. Companies are offering higher pay. And coronavirus cases are tumbling again.

The big question is how quickly they return and whether the so-called labor-force participation rate returns to pre-crisis levels. Some economists are not so sure, pointing to a massive wave of retirements early in the crisis.

Unemployment rate

The official U.S. unemployment rate fell to 4.8% in September from 6.7% at the end of 2020, marking the lowest level since the start of the pandemic. And economists predict it fell another tick last month.

On the face of it, that seems like great news, and it is. The jobless rate isn’t far off from the pre-crisis low of 3.5%, which was the lowest level in 50 years.

But the number doesn’t tell the whole story. The pandemic has distorted the ability of the government to measure unemployment. Economists estimate the real rate is about 2 percentage points higher.

Nor does the unemployment rate capture the millions of people who are able to work but aren’t counted because they are not looking for jobs.

Rapidly rising wages

The labor shortage is tough for companies, but it’s been good for workers. They are getting higher pay and are unlikely to be laid off. Average hourly wages grew at a 4.6% yearly rate in the 12 months ended in September.

Read: Labor costs surge in 3rd quarter due to higher wages and production snafus

Excluding a brief pandemic-related surge last year, that’s the biggest increase since the government began keeping track 2006. And it’s the fastest increase since the early 1980s based on other government measures.

The downside? Higher wages are adding to the surge in inflation. Most of the increase in wages is in danger of being eaten up by inflation, leaving employees not much better off.

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