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Wednesday, July 28, 2021
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Labor force shortage restrains US economic recovery

The COVID-19 pandemic weighed heavily on economic recovery in the United States as it brought up labor force shortage and disrupted the supply chain, leading to mounting inflation pressure, according to the monetary policy report released on Friday by the Board of Governors of the U.S. Federal Reserve System.

The labor force participation rate grew quite slow in the U.S., much lower than that in the same period last year, and a number of factors contributed to the weak labor force participation rate, including the increase population of retirees, the growing pressure of childcare cost, and worries about infections, according to the report.

Meanwhile, the expanded unemployment insurance encouraged more people to drop out of the labor force.

The U.S. Federal Reserve believed that the COVID-19 pandemic may bring persistent changes to the U.S. labor market structure.

The U.S. manufacturers are experiencing supply chain bottlenecks, which also restrain the U.S. economic recovery.

Factories were shut down during the pandemic, causing backlog of orders and inventory shortages. In addition, the limited cargo handling capacity and carrying capacity of the port means that manufacturers cannot get imported raw materials in time.

These factors have prevented manufacturers from expanding production to meet demand growth. Looking ahead, it is not clear when supply chain bottlenecks will be resolved, according to the report.

The Federal Reserve said in the report that supply chain bottlenecks and the supply shortage lead price increase and the U.S. economy may face inflation pressure longer than expected, but more likely a temporary one.

Despite the long-term expectation for inflation to rise since the end of 2020, the Federal Reserve set the inflation rate this year at two percent.

Fed Chairman Jerome Powell will testify Wednesday before the House Committee on Financial Services, and Thursday before the Senate Banking Committee.

The U.S. unemployment rate rose to 5.9 percent in June, and the labor participation rate maintained at 61.6 percent, 1.7 percentage points lower than that in last February.

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