U.S. Labor Market Needs 18 More Months to Recover, Fitch Says

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The U.S. labor market will take about a year and a half to return to full steam after the economic blow from the Covid-19 pandemic, according to Fitch Ratings.

Federal stimulus and a gradual reopening of service industries that were hit hardest will help boost demand for workers, Fitch said in a report released Wednesday. Still, analysts led by Chief Economist Brian Coulton don’t expect unemployment levels to reach their natural rate, about 4.3% in Fitch’s view, until the fourth quarter of 2022. Doing so would require the creation of about 7 million jobs.

U.S. Labor Market Needs 18 More Months to Recover, Fitch Says

The massive disruption last year will cause some “scarring” because some older workers were permanently discouraged from working, dampening the labor supply. Even so, Fitch sees persistent supply and demand imbalances in the months ahead, limiting upward pressure on wages.

“Many office workers in large cities in New York and California successfully worked remotely during the pandemic,” Olu Sonola, a Fitch senior director, said in a statement. “The likelihood that many will continue remote work, in some form, may also prove to be a drag on the pace of labor market recovery in New York and California.”

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