Indications are rising that the hottest job market in a generation is starting to cool. With the bursting the cryptographic bubbletechnology companies shrinking in hiring and consumers increasingly worried about spending, economists believe the historically low unemployment rate is likely to rise: recession or no recession.
The Federal Reserve made this clear last week when interest rates rose 0.75% – a movement designed to tame inflation and loosen the labor market, which the Fed considers slanted to an unhealthy degree in favor of workers.
While rising unemployment does not necessarily mean a recession, it does indicate that the labor market is changing. These are the main indicators that change is on the way.
It is part of the Fed’s plan
Federal Reserve Chairman Jerome Powell has warned that a sharp rise in unemployment could come as the Fed raises interest rates in the fastest pace in 25 years. Speaking at a central bankers’ forum in Sintra, Portugal on Tuesday, Powell said there was “no guarantee” that the Fed could raise rates just to curb inflation without causing a recession.
“We think we can do it. That’s our goal,” he said, but added, “It’s gotten harder. The roads have been paved.”
Last week, the Fed revealed that its renewed approach to taming inflation at all costs would likely boost unemployment. After previously predicting that unemployment would fall to 3.5% this year and next, the Fed now expects the rate to rise to 3.9% next year and 4.1% the following year. The Fed also updated its policy statement to remove an earlier prediction that the labor market “would remain strong.”
“It is noteworthy that they are now forecasting a significant rise in unemployment for 2024 and that they abandoned the benchmark of hoping the‘ labor market will remain strong ’in the statement,” noted Brian Coulton, chief economist at Fitch Group , at the time.
According to the Fed, an unemployment rate of 4.1% would still be low by historical standards, Powell stressed in a press release. conference after the walk.
“We don’t seek to leave people out of work, of course, we never think there are too many people working and fewer people have to have jobs, but we also think we really can’t have the kind of job market we want without price. Stability.” , he told reporters.
“We hadn’t seen unemployment rates below 4% until a couple of years ago; we’d seen it for like a year in the last 50 years,” Powell said. “An unemployment rate of 4.1% with inflation on the way to 2%; I think it would be a successful outcome.”
MoneyWatch: Major banks predict the U.S. will go into recession this year
06:03
Layoffs, freezing of contracts in some sectors
The job market has already cooled from its dizzying pace at the beginning of the year, from 700,000 new private sector jobs created in February to just 330,000 added last month. Economists expect the June hiring report to slow further, showing about 250,000 jobs created, according to FactSet.
According to Wells Fargo analysts, the three-month average for job creation has fallen to where it was in February 2021.
Some sectors of the economy react even harder, technology in particular. The technology-heavy Nasdaq compound has lost a third of its value this year, while more speculative assets such as cryptocurrency have evaporated.
The layoffs have followed, with tens of thousands of workers in the technology sector grabbing the ax in recent months, and even consolidated companies freezing hiring and canceling job offers. About 30,000 technology workers have been cut in May and June, according to the tracking site Layoffs.fyi. This includes the fast-growing startup Coinbase, which cut 1,100 jobs earlier this month, as well as more established companies such as Netflix, Compass, Redfin and Sprinklr.
Technology is one of several industries that are especially sensitive to rising interest rates and where hiring is expected to slow, said Joe Brusuelas, chief economist at accounting firm RSM. There has been "an observable slowdown in recruitment in areas sensitive to tariffs on manufacturing, trade and transportation, and the goods-producing industries, as well as in finance," Brussels said in a blog post.
Small businesses, which are responsible for most jobs in the United States, are also slashing hiring plans. While small businesses continue to report problems hiring workers they consider skilled, the share of companies they say they plan to increase in the workforce has dropped from the all-time highs of 2021, according to the National Federation of Independent Businesses.
Retail shows signs of problems
Measures in the activity of the retail labor force, another sector sensitive to the slowdown in consumer spending, support the idea of a declining labor market.
According to Dave Gilbertson, UKG vice president, labor activity in the sector has been declining in March, April and May, before reversing in June. So far, the falls have been largely due to workers who have worked fewer overtime hours. “If we see a slight decline in labor activity over the next few months, this is an indication that we will see a very gradual increase in unemployment,” he said.
“If we see a big jump, positive or negative, that could disrupt what the Fed is likely to do,” he said.
So far, the weakness in technology and retail has not translated into broader layoffs. Initial applications for unemployment benefits have increased since mid-Marchbut ongoing claims remain near an all-time low, a sign that people who are losing their jobs can, for now, find new ones quite easily.
If continued demand increased by 10%, an increase of about 150,000, this would predict a recession in the next two months, according to a Deutsche Bank investigation, which looked at unemployment demands dating back to the 1960s.
"[S]or even though we’re not on trend right now, we shouldn’t change the image too much, ”the researchers said.
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- Unemployment
- Federal Reserve
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