The US job market has been celebrated as the greatest aspect of the current economy. On the surface, this is a correct assessment of the labor situation. The United States returned nearly three million positions to the marketplace in the first half of 2022, the unemployment rate is below 4%, wage growth is strong (more on that later), job openings remain above ten million, and four million Americans quit their jobs each month. These are headline figures that certainly paint the economic landscape in positive hues. However, for multiple reasons, the second half of 2022 might not be so great for the US job market.
Looking at US Job Market Data
In June, the number of job openings cratered by 605,000, falling to 10.7 million, according to the Bureau of Labor Statistics (BLS). This is the lowest point since September 2021, short of the market estimate of 11 million. It also represented the third consecutive monthly decline after reaching a peak in March. Most of the decreases were concentrated in retail trade (-343,000), wholesale trade (-82,000), and state and local government education (-62,000). In addition, job quits eased to 4.237 million in June, while total separations (layoffs and discharges) tumbled to 5.931 million, BLS data found.
Meanwhile, the S&P Global US Manufacturing Purchasing Managers’ Index (PMI), which had slumped to a more than two-year low of 52.2, reported weakening payroll growth. Plus, the Institute for Supply Management’s (ISM) Manufacturing Employment subindex remained in contraction territory for the third consecutive month.
On Aug. 4, the BLS will release the latest initial jobless claims data. The number of Americans filing for unemployment benefits, which has risen every week since the middle of April, is projected to climb to 259,000 in the week ending July 30. Continuing jobless claims are projected to increase to 1.37 million.
Everyone will be waiting for the July jobs report. Some experts say that the monthly non-farm payroll snapshot could make or break the financial markets. Economists’ expectations indicate a gain of 250,000 last month, with a jobless rate of 3.6%. If accurate, it would be the worst showing since April of last year. Average hourly earnings are anticipated to ease to 4.9% year-over-year, while average weekly hours are expected to stay flat.
Should the US job market data deteriorate in the coming weeks and months, will the White House and the Federal Reserve finally admit that the economy is in a recession? It should be a fascinating period.
Inflation and Recession
The Great Resignation highlighted that labor conditions tilted in favor of workers. But all the gains that employees have enjoyed on the other side of the coronavirus pandemic have been tossed into the trash receptacle because of rampant price inflation. On the one hand, the Atlanta Fed Bank’s Growth Tracker shows 6.7%. On the other, BLS data spotlight that real wage growth (inflation-adjusted) is about –4%. It can be challenging to see a robust employment arena when employees watch their paychecks being eaten away by the cost-of-living crisis.
When workers are losing money to inflation, how can this be a positive trend for the working class?
In addition, recession fears could begin weighing on the job market. Many large companies are trimming the fat (Ford, Netflix, Tesla Motors, Twitter, Oracle, and more), while smaller firms have erased thousands of staff members from the workforce. In addition, a panoply of surveys shows that employers are slowing down their hiring plans and wage growth in anticipation of an economic downturn. This should make the interventionists, who have been purporting that the labor market needs to crash to stop inflation, pleased with their interest-rate hikes.
Will Things Blow Over?
During his post-Federal Open Market Committee (FOMC) policy meeting, Fed Chair Jerome Powell conceded that he and his merry band of central bankers got it wrong because they anticipated everything would just go back to normal amid the COVID pandemic. The American people would get their vaccines, return to work, and keep calm and carry on. This did not happen. As a result, the Eccles Building dropped the ball, with $9 trillion seeping into the economy and triggering four-decade high inflation.
Of course, this does not absolve Congress of culpability since lawmakers approved massive amounts of spending without even thinking that this would add to surging inflation. They could not look beyond one year, understanding that shutting down the economy and extending to the nation something-for-nothing checks would have grave consequences.
So, now that the central bank is raising interest rates and the White House is on a spending blitzkrieg, they are hoping that everything will blow over and return to normal. With the markets penciling in cuts to the benchmark fed funds rate next year, perhaps public policymakers will declare a premature victory. But, should millions of people lose their jobs and price inflation remain elevated, any pronouncement would be as silly as former President George W. Bush delivering a Mission Accomplished speech on an aircraft carrier. Or, in this case, standing in front of a printing press.
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