Federal Reserve official Tom Barkin gave a general thumbs-up about the U.S. economy Tuesday, while pointing to some areas that may continue to lag in the near term.
Barkin, president and CEO of the Federal Reserve Bank of Richmond, spoke Tuesday to the Wilmington Chamber’s Public Policy Committee and other chamber members. He first provided an overview of the economy’s climb out of the pandemic-related depths reached a year ago when equity markets plunged 30% and 8 million people lost their jobs.
“Spending has come back faster than employment,” he noted, observing that government recovery payments and reduced household spending during the pandemic have resulted in higher household savings and lower credit card debt.
Vaccinations have helped spur public confidence about resuming former activities. Now there’s more demand than supply for some goods and services, Barkin said. Travel is returning, he said, pointing to the lack of parking spots at an airport he visited recently.
“The only thing lagging is a return to the business office,” he said.
Asked about the current labor shortage, Barkin said that, while there’s a surge in demand for workers, there are 8.2 million fewer people employed now than before the pandemic.
“The 266,000 jobs gained in April was weaker than the demand would have indicated,” he continued. “There is a drop in [labor] participation: some people are still home with their kids. There has been a surge in retirements. Other workers, thanks in part to government payments, may have the wherewithal to be choosy [about their next job].
“ I think . . . you have an employee base that now has a bit more money in their pockets, thanks to the fiscal stimulus and reduced spending,” Barkin said. “There’s a drumbeat in the press that employers are increasing wages. What wage do you need to get back in the workforce? People making less than $60,000 a year have increased their expectations. Why would you not be a little choosier if you think you can make more money? We’ve got to make a match between the open jobs and the available workers to unclog the labor market.”
There is definite pressure on employers, especially in the hospitality and retail industries, to increase wages, Barkin said. While that can be successful, he added, companies in the services sector and retail are also looking at increasing automation.
With inventories of some goods low and disruptions in some supply chains, the current lag in manufacturing could extend well into the summer, Barkin added. Such a lag “could limit the upside in the GDP,” he said.
Asked about inflation, the Fed official said some price increases are just a return to normal levels after the travel industry and some service providers lowered their prices to entice customers. But other industry segments – new and used cars, car rentals, construction materials, for example – won’t see price adjustments until supply chain kinks are straightened out.
Barkin was also asked about the return of business travel, to which he responded he does not believe that the need for in-office work or business travel has gone away.
"We collaborate better in person," he said. "Relationships and trust are established better in person. [In-person interactions] will come back - with flexibility."