A “Now Hiring” sign is seen at a FedEx location on Broadway in New York City on June 7, 2024.
Michael M. Santiago |
The US labor market is cooling at a worrying rate, but not to a degree that would cause panic – at least not yet, according to economists.
Their concern is the dynamics of key labour market indicators such as unemployment, employment growth and recruitment rates.
Such barometers, which were historically strong about a year ago, gradually weakened as the US Federal Reserve raised interest rates to cool the economy and reduce inflation.
More from Personal Finance:
Unemployment system not prepared for recession
10-to-4 working is the new 9-to-5
Recession could thwart pension plans
If the labor market situation continues to slow at the current pace, a recession could occur, economists say.
“We are still on a trajectory that is not currently a red alert,” said Nick Bunker, head of North American economic research at job site Indeed.
However, if the decline does not level off soon, a soft landing for the economy is unlikely to be in sight, he said: “We will land, but it will happen with a bang.”
Why momentum is slowing down
The good news: This figure is an increase from the 89,000 jobs created in July. The unemployment rate also fell slightly, from 4.3% in July to 4.2%.
However, several metrics point to “slowing momentum” across the labor market, said Ernie Tedeschi, economics director at the Yale Budget Lab and former chief economist of the White House Council of Economic Advisers under the Biden administration.
Current levels of job growth and unemployment “would be fine for the U.S. economy for many months to come,” he said. “The problem is that other data do not give us confidence that we will stay there.”
The average employment growth in the last three months was 116,000; the three-month average a year ago was 211,000. The unemployment rate has also risen steadily, from 3.4% in April 2023.
In addition, employers are hiring at the lowest rate since 2014, according to separate U.S. Labor Department data released earlier this week.
Hiring hasn’t been broad-based either: Private sector job growth outside health and human services has been “unusually slow,” averaging about 39,000 jobs over the past three months, compared with 79,000 last year and 137,000 between 2015 and 2019, says Julia Pollak, chief economist at ZipRecruiter.
In addition, the quit rate is at its lowest since 2018 and the number of vacancies is at its lowest level since January 2021. Quitting is a measure of employees’ confidence in finding a new job.
The number of unemployed people who find a job is roughly at the same level as in 2017 and “continues to decline,” says Bunker said.
“The picture that is emerging is that the strong labor market momentum we saw in 2022 and 2023 has slowed considerably,” Tedeschi said.
Overall, the data points are “not necessarily worrisome or already at recessionary levels,” he added. “(But) they are weaker. They could be harbingers of a recession.”
Why discharge data is a ray of hope
Nevertheless, there is reason for optimism, economists said.
Permanent layoffs, which in the past were considered “harbingers of recessions,” have not really changed, says Tedeschi.
Federal data for For example, the number of unemployment claims and the layoff rate indicate that employers are holding on to their employees.
The recent gradual rise in unemployment is largely not due to layoffs, economists said. There was a “good” reason for it: a sharp increase in the labor supply. In other words, many more Americans entered the labor market looking for work; they are considered unemployed until they find a job.
“As soon as layoffs happen, it’s game over and we’re in a recession,” Tedeschi said. “But that’s not what happened at all.”
Nevertheless, the job search has become more difficult for job seekers than in the recent past, says Bunker.
Relief from the Fed will not come quickly
Federal Reserve officials are expected to begin cutting interest rates at their next meeting this month, which would take pressure off the economy.
For example, lower borrowing costs could encourage consumers to buy homes and cars and businesses to invest more and hire more workers.
This relief will probably not come immediately, but will probably only reach the economy after many months, economists said.
Overall, however, the current picture is “still consistent with an economy experiencing a soft landing rather than plunging into recession,” Paul Ashworth, chief North American economist at Capital Economics, wrote in a commentary on Friday.
