The economy is in expansion mode, but the Federal Reserve is still grappling with pandemic-related turmoil, past, present and future.
Thanks to vaccinations, the reopening of several business sectors after last year’s lockdowns and “the healthy financial positions of households and businesses,” the economy is swiftly recovering and demand is robust, Federal Reserve Chair Jerome Powell said during a press conference this week. But the pandemic is preserving economic uncertainty, disrupting the supply chain and driving labor shortages, he also said.
“The rising COVID cases in recent weeks, along with the emergence of the omicron variant, pose risks to the outlook,” Powell said.
[embedded content]
The National Retail Federation cited the difficulties in hiring in recent months, which has interfered with retailers’ need for extra help at the holidays, as one reason it was opposing the Biden administration’s vaccine mandate. That rule is on hold, tied up in several courts, after challenges from groups including the NRF.
But the pandemic, and its recent surge, is the likely reason why retailers aren’t filling open positions. Many people are avoiding work out of concerns about the coronavirus or the lack of childcare and elder care, while other households are opting to depend on just one income thanks to robust stock portfolios, Powell said.
“The longer the pandemic goes on, maybe the less likely that people will come back because … they get used to their new life and they lose contact with their old jobs,” he said. “That’s what the evidence would say.”
Retail jobs are going unfilled despite pay hikes at several stores and warehouse operations, though that’s not a factor in inflation so far, according to Powell. Price increases are now affecting a broad range of goods and services, and Powell noted the stress on households struggling to pay for food, housing and transportation.
“Wages have also risen briskly, but thus far wage growth has not been a major contributor to the elevated levels of inflation,” he said, adding later that “incomes overall are going up really significantly because of increased employment.”
The best news for retailers came in Powell’s upbeat prediction for the holiday shopping season. November retail sales soared more than 16% year over year in the core group tracked by Retail Dive, after increases of over 11% in October and September.
“There may be something in the seasonality, that this year’s holiday spending may have been pulled forward,” he said. “And of course there may be effects from delta and then there might be going forward from omicron. But fundamentally, though, the consumer is really healthy. And we expect personal consumption expenditures to be pretty strong in the fourth quarter.”
