June 7, 2021
Unfilled job openings challenge employers;
States boost spending as economies recover.
The May jobs report released last week disappointed many analysts. The addition of 559,000 jobs would be good news in ordinary times. But these are not such times. And the big story behind the numbers is the continuing labor shortage. As the Wall Street Journal reported,

"A record level of job openings in the U.S. suggests businesses are having difficulty filling positions. Economists have pointed to a variety of factors that could be contributing to constrained job growth. Those issues include some workers’ concerns about contracting the coronavirus, child-care responsibilities preventing some parents from returning to work, and a $300-a-week federal supplement for recipients of unemployment benefits."

You don't have to look far to find examples of the struggle to fill jobs. The Seattle Times yesterday ran a story on the hiring difficulties faced by restaurants in Washington.

"After almost 15 months of pandemic restrictions, layoffs and losses, many restaurants, bars and other food service businesses face a new crisis: With just weeks to go before restrictions lift, a deep labor shortage is derailing hopes for a quick recovery — and renewing questions about the role of pandemic unemployment benefits.

"The numbers are striking. Demand for cooks, waiters and other food service workers is scorchingly high: As of May 28, job postings in Washington’s leisure and hospitality sector, of which food service is the biggest component, were up 39% from January 2020, before the pandemic, compared to just 19.8% for all sectors combined, according to data from Harvard University’s Opportunity Insights website.

"Yet the size of the state’s food service workforce is still far below pre-pandemic levels."

The article combines data with anecdotes to tell a compelling story. While the hospitality industry is clearly the most-impacted sector, employers across the state economy tell similar stories.

"As Washington emerges from the pandemic, one of the biggest challenges facing many employers is finding enough qualified workers.

It’s a dramatic shift from a year ago, when businesses were forced to close their doors to slow the spread of the virus, leading to an unprecedented surge in unemployment.

Today, many Covid-related business restrictions are either gone or going away soon, and unless something is done to address the escalating workforce crisis, it will be a drag on long-term economic recovery.

“'A lack of skilled and qualified workers was a big issue for many employers prior to the pandemic,” Association of Washington Business President Kris Johnson said. “The pandemic has exposed and magnified the issue, as it has so many others.'”

One suggestion for easing the shortage in the near term:

"...with so many jobs available now, it’s time to end the suspension of the job search requirement for those receiving unemployment insurance benefits."

The AWB report identifies other strategies that will have to come into play as businesses move into the next phase of recovery.
Preliminary economic forecast shows sustained growth
Even with the acknowledged problems posed by the labor shortage, the state economy is expected to experience continued growth. The Economic and Revenue Forecasting Council released its preliminary economic forecast last week. The anticipated GDP growth is revised upward.

"We expect real GDP to increase 6.6% in 2021 and 4.4% in 2022 which is much stronger than the 5.7% and 4.1% growth rates assumed in the March forecast."

There's more good news in their projections, including better than anticipated employment growth and continued strength in personal income.

In all, the report suggests the revenue forecast to be released later this month will again be positive.
State spending surged across the country
As we noted in the previous newsletter, last Tuesday the governor signed the states $59 billion biennial budget. State spending will increase nearly 13 percent in the coming biennium, beginning July 1, so it will pay to keep monitoring state revenue growth. The new budget needlessly drains the budget stabilization account and includes revenues from a suspect new capital gains tax. There are legitimate concerns about the sustainability of the spending plan over time.

Fueled by federal aid and a swifter and stronger revenue recovery across the nation, state legislatures were quick to spend. Washington is far from alone in adopting a double-digit increase in the state budget. The Associated Press reports,

"...lawmakers are passing budgets with record spending. Money is pouring into schools, social programs and infrastructure. ... Spending plans for the budget year that begins July 1 are up 10% or more in states spanning from Florida and Maryland to Colorado, Utah and Washington."

Some fiscal analysts are optimistic.

"states now face “a very promising fiscal and economic outlook over the next couple of years,” said Justin Theal, a state fiscal research officer at The Pew Charitable Trusts."

Possibly. We hope so. And we also wish there'd been a little more expenditure restraint and a tighter hold on the reserves. Because sometimes "promising outlooks" turn out to be wrong.
From the blog