The Fed Increased Rates for the Fourth Straight Month and Implications for Labor Relations, Salam, and Wage Growth in the U.S.
In the late 2020’s and early 2021’s, resignations and job openings went up in tandem. Even as openings kept rising, the number of people quitting began to level off. Americans are changing jobs a bit more than they did before the outbreak, but not as much.
Layoffs are still historically low despite the slow economy and fear of a recession. Initial claims for unemployment insurance, an indicator highly correlated with layoffs, were 219,000 for the week ended October 1 – higher than the week prior, but still one of the lowest readings in recent decades. Many employers are not going to reduce the number of workers even as their businesses are not growing. That’s because companies are worried that they will have trouble recruiting new workers when they start expanding again.
Eric Hart, then the chief financial officer at Expedia, told investors on the company’s earnings that there could be an opportunity to ramp up hiring over the coming months.
What’s happening: Low unemployment rates and wage growth may appear to be good for an economy that’s close to recession, but has actually proven bad for markets.
A strong job market in normal times is the kind of news that might be celebrated, but in 2022 it’s cause for concern, as it suggests the economy is overheating. The Fed hiked rates for the fourth-straight time on Wednesday, the latest in a series of moves that had been unthinkable just a few months ago.
The Bureau of Labor Statistics will release the jobs report on Friday and it is expected to show signs of moderation in the labor market.
See here: The US economy is expected to have added 200,000 jobs last month, down from 263,000 in September but well above the pre-pandemic average. The unemployment rate is expected to increase slightly, to 3.6% from 3.5%.
So, while things are slowing down, they’re still pretty robust relative to those pre-pandemic normal times. That is part of what is keeping inflation high.
The October jobs report showed a slowdown in wage gains, with the average weekly wage paid by businesses up just 3.8% from the 4.1% annual gain in September, and well off the gains of 5% or more seen earlier this year and during many months of 2021.
The imbalance of labor demand and worker supply has been consistently highlighted by the Fed as a potential sticking point in its efforts to lower inflation. While Fed officials have noted that wages don’t appear to be driving inflation, they have expressed concern that a a low participation rate and the imbalance of worker supply and demand could cause pay to rise and, in turn, cause higher prices.
It’s the bottom line. If Friday’s headline number comes in above 250K, Wall Street may read that as a sign the Fed is going to have to keep raising interest rates, adding to already-significant strain across financial markets.
It is difficult to exaggerate how delicate the situation is. Kristalina Gonzalez, the Managing Director of the International Monetary Fund, today said that the world is going through a period of economic fragility after a series of shocks, such as the flu and war in Ukraine.
That’s why the Fed’s decisions are being so closely scrutinized. When the Fed raises rates more frequently, it creates a domino effect that pushes the US dollar up and forces other central banks to raise their rates as well. All of which could tip the world’s biggest economies into a recession, the UN has warned.
Nightcap Jobs in Belarus: Petrov Prohibited Price Increases, President Alexander Lukashenko, and a Social Media Man after the Trump Deposition
Ford is, once again, raising prices on its first electric pickup, the F-150 Lightning. The entry-level model will go for around $52,000, up significantly from $40,000 when it went into production this spring, the company said.
(Reuters) Belarus’ President Alexander Lukashenko banned consumer price increases across the economy, according to state media. All price increases are forbidden from today. Prohibited!” the president is quoted as saying.
A source said lawyers for Musk and the social media company agreed to a postponement of his deposition. Musk was originally scheduled to give a deposition today, but he threw a curveball earlier in the week, offering to buy the company under the original terms of the deal in exchange for scrapping the litigation. The two sides are haggling over things.
Source: https://www.cnn.com/2022/10/06/business/nightcap-jobs-report/index.html
Amazon is Warning Its Employees: The Latest Indirect Detection of Human Sexual Perturbation in the Labor Market
(Axios) Boston Dynamics, the company behind those viral videos of its creepily agile four-legged robots, is pledging not to weaponize their products and encouraging others in the industry to do the same. The company said in a letter that it was concerned that customers wouldn’t believe it if they said they weren’t building an army that would destroy humanity. Thankfully though, they’ve now said they’re not doing that. Phew!
The company announced yet another round of layoffs, its fourth round of cuts this year, as it tries to shore up its bottom line. Or, as the company spokesperson put it in a statement: Peloton is on a “transformation journey” in which it is “optimizing efficiencies” to “achieve break-even cash flow.” I do not know who writes this, but I would love to stop it.
(CNN Business) Amazon halted roughly 50 workers from their jobs on Tuesday after they organized a strike in protest of the fire at the warehouse. Workers at the Staten Island facility reported that parts of the building still smelled of smoke, even after the fire had been put out. There were 100 workers walking off the job.
Nela Richardson, chief economist at the payroll processing firm, said she thought it was good news for the Federal Reserve. “You are seeing some softening in early-stage demand [for workers] but still continuation in hiring.”
“It’s really hard to hire somebody this month and three, four months from now let them go. Tim said that people are being a bit more cautious.
Manufacturing represents a small slice of the overall workforce, however. A similar ISM survey of service-sector businesses did not find a slowdown in hiring.
ADP, which handles payroll for more than 25 million workers across the country, reported solid job gains in restaurants, retail and professional services last month.
The US has replaced jobs that were lost during the early stages of the Pandemic. Continued job gains will depend in part on the number of workers who are available.
“The more people who come back to the labor market, the more likely we’ll see some loosening in hiring conditions and a continuation of these steady gains,” said Richardson.
August saw a big influx of new and returning workers, as nearly 800,000 people joined or rejoined the labor force. Inflation watchdogs at the Fed will be on the lookout to see if that trend continued in September.
There are currently 1.9 jobs for every one person looking for work, a margin that the Fed worries is keeping inflation uncomfortably high. With plenty of options, workers are demanding higher wages; and with few applicants, managers are forking out higher pay, which bolsters demand for goods and services (and therefore drives up prices).
Cook and her colleagues on the Fed’s governing board have made it clear that interest rates will remain elevated until there’s convincing evidence that prices are leveling off.
Cook said in her first public speech that inflation was too high and must come down until the job was done.
Why is Employment Growth Growing? Revisiting the Progress During the First Two Years of the SARS-Lifshitz Economic Recession
Editor’s Note: Gad Levanon is the chief economist at the Burning Glass Institute. He was the head of the Labor Market Institute at The Conference Board. The opinions expressed in this commentary are his own.
Why is employment growth strong? The US economy is doing well more than expected. The Atlanta Fed predicts that the GDP will grow at a 2% rate in the third quarter of 2022, which is less than the 2.5% it grew last year. The demand for goods and services increases when there is more demand.
Many industries are growing at a faster rate because they are still coming back from the Pandemic. Convention and trade show organizers, car rental companies, nursing homes and child day care services are all growing fast because they are still below pre-pandemic employment levels.
Next year, however, will look very different. Many of the industries that are still recovering from the pandemic will have reached pre-pandemic employment levels. With demand saturated, those industries may revert to slower hiring. This alone is unlikely to push job growth into negative territory. Monetary policy will be used to deal with that.
Reducing demand for workers is one of two ways that the labor market can be reined in. But it’s hard to engineer a boost in labor supply. That takes the kind of legislative action needed to increase immigration, drive people into the labor force or grow investment in workforce training. This is hard to find today in a political environment with differing opinions.
Fed officials hope that companies will reduce the number of employees as the interest rates rise. We haven’t seen any evidence of a trend so far.
Pollak told CNN Business that reopening of schools would have been a good time for many people who left the labor force during the epidemic to get back to work. “We may not see some of the people who left come back.”
The Implications of a Fourth-Law Fed Rate Increase for Economy, Tourism and Tourism: What Has the Sector Learned in the Last Three Months?
The number of people looking for work decreased in September, contributing to the fall in the unemployment rate.
“That appears to be a certainty for the upcoming meeting in early November. The magnitude of future rate hikes will become clearer as we get closer to the final two [policymaking] meetings of the year,” he said.
The Fed meets November 1-2 to discuss monetary policy and is widely expected to raise its benchmark interest rate by three-quarters of a percentage point for an unprecedented fourth time in a row.
However, that pace is unsustainable, said Dean Baker, senior economist at the Center for Economic and Policy Research. If monthly job gains edge down to 200,000 or around 150,000, that would likely sit better with the Fed, he said.
The pandemic forced restaurants to incorporate online ordering, pick-up and delivery on a greater scale, and customers became more comfortable in using those services, he said. Hotels haven’t bounced back fully, but neither has business travel, he said, adding that the rise of Zoom and competitors like Airbnb could continue to result in more muted demand for hotel stays.
Staffing agencies and contract workers have become increasingly important for businesses as they recover from the swine flu. That sector started the pandemic with 2.9 million employees, plummeted to 1.9 million during the April 2020 trough, hit a record high of 3.56 million in July 2022 and has declined in each month since.
The Impact of the Fed Rate Increases on the U.S. Economy and Labor Markets: Evidence from a Multiscale Study of the Rise and Fall of the Great Recession
The recovery is growing more complex and the labor market starts to feel the impact of the Feds rate hikes, according to Pollak.
While declines in these sectors are anticipated during a period of high interest rates, what could be a troubling sign are net job losses in crucial support industries such as local education, child care and trucking, said Russell Weaver, an economic geographer with Cornell University’s ILR School.
“Those and a few other sectors have large ripple effects,” Weaver said, noting ongoing supply chain concerns and the ability for people to have reliable education and child care services so that they can return to the workforce. That can have an impact on parents’ future economic and work prospects.
“We’re not sensing that a recession is imminent,” said Dionne Nelson, Laurel Street’s chief executive officer and founder. “We’re still very busy. We are still looking for more people. Our markets are still busy.
The job growth in September was still robust, indicating that the economy remained on track despite higher interest rates. But the strong showing left many investors unhappy because they saw signs that the fight against inflation may become tougher and more prolonged.
The labor market has avoided some of the deep scars that were left from the last recession. It has been less than two decades since long-term unemployment has been this low. The overall unemployment rate hasn’t been lower than this since the 1960s. Defying claims that “no one wants to work anymore,” 80.2 percent of Americans in their prime working years had jobs in September, above the rate in the year before the pandemic.
The economy of the U.S. took a hit from the Pandemic. There are more people working in warehouses today than there was in February 2020. Child care remains in short supply, forcing some parents — a disproportionate share of them women — to work part-time or not at all. “Long Covid” is also clearly keeping some people out of work, although researchers have come up with different estimates of how many.
Getting there has been bumpy. As vaccines became widely available and businesses reopened last year, employers suddenly had more jobs to fill than applicants available to fill them. It was good news for workers, who were able to switch jobs if they wanted to negotiate for higher pay. It helped feed inflation, as businesses raised prices to cover higher labor costs.
Take the latest monthly JOLTS survey on job vacancies, quits and layoffs. Tuesday’s report surprised economists, who had predicted that the number of job vacancies in the United States would fall amid measures by the Federal Reserve to slow business growth in order to tame inflation. But instead of falling to 10 million, it grew to over 10 million.
The logic behind Powell is very simple. They are the most direct measure of demand since employers don’t try to hire when no one is buying their products. When lots of companies are hiring, they have to pay more in order to compete with other companies for workers.
Economists see quitting as a sign of confidence among workers: Changing jobs is a risk, so people avoid doing so if they’re worried about the economy. Since people don’t jump employers without a boost in remuneration, job-switching contributes to wage growth. Data released yesterday from ADP, the payroll-processing giant, showed that people who switched jobs in October saw their pay rise roughly twice as quickly as people who stayed put.
With the Fed’s dual mandate of full employment and stable prices it is absolutely critical that the Fed and markets have a true description of what is going on with inflation and unemployment.
Analysts all agree that the odds of a recession are high. But the Fed is wagering that the pain of a recession (and the job losses that would accompany it) is preferable, in the long term, to the pain of runaway prices.
Unfortunately for Democrats trying to hold on to power next week, the pain of inflation appears to be outweighing any positive sentiment about job security. Three-quarters of likely voters feel that the country is in a recession, according to a new CNN poll.
Nightcap Housing Crisis: How Boomers Are Coping with the Realms and Mortgage Rates in the Era of Competition, or Why Boomers Need More Homes
The younger generation of people who want to buy their first home are dealing with more bad news. The average age of a first-time homebuyers is now 36 years old, up from 33 last year.
(It also didn’t hurt that dizzying stock surges meant Baby Boomer parents with large investment portfolios were happy to pass on some of those gains to their darling Millennial kids.)
Those who closed on a home in the crush of competition should be extremely lucky as the housing boom goes bust.
The National Association of REALTORS has been conducting a survey for more than four decades and has reported that first-time buyers made up just 26% of all homebuyers in the year ending in June.
According to Jessica Lautz, the vice president of demographic and behavioral insights at the NAR, people need to save to fund student debt, child care and other expenses. “And this year were facing increasing home prices while mortgage rates are also climbing.”
Oh yeah, one other thing: In addition to mortgage rates going up, home prices also shot up, with the median peaking at $413,800 in June. (Imagine your starter home clocking in at 400 grand!)
Jenny Schuetz, an urban economist at the Brookings Institution, states that the land use policies make it difficult to add more homes in desirable locations.
The housing supply has expanded through subdivisions at the urban fringe rather than rebuilding in existing neighborhoods. That’s putting more people and homes in environmentally vulnerable areas, such as wildfire-prone regions of the West.
As affordability reaches crisis levels, now is a good time for federal and local governments to rethink the way we frame the American Dream. Those who want to benefit from it are those who are represented in elected office. As Schuetz argues, the upper-middle class Boomers in power now are, understandably, reluctant to change the system that got them where they are.
Source: https://www.cnn.com/2022/11/03/business/nightcap-housing-crisis/index.html
The Fed Sensitivities to Work and Inflation: Why the UK and the EU haven’t hiked a penny in 33 years
Hot on the heels of the Fed’s fourth-straight 0.75 percentage point rate hike, the Bank of England followed suit Thursday, raising its own key interest rate by the same amount — its biggest hike in 33 years. The European Central Bank did the same thing last week.
(Side note: “Basis points” are how central bankers talk about rate moves, which usually happen in tiny increments. One basis point = one-tenth of a percentage point.)
In normal times, that’s the kind of news worth celebrating. It suggests the economy is overheating, and this is cause for concern in the future. That’s partly why the Fed announced its fourth-straight three-quarter-point hike, the latest in a series of aggressive moves that would have been unthinkable just a few months ago.
“Today’s stronger than expected report illustrates the difficult task that still lies ahead for the Fed wrestling a resilient labor market and sticky inflation,” said Mike Loewengart, head of model portfolio construction for Morgan Stanley Global Investment Office. “While the number may be disappointing for investors hoping for a dovish Fed sooner rather than later, keep in mind it was the lowest reading in nearly two years.”
Economists had expected a smaller rise in the unemployment rate, to only 3.6%. The unemployment rate is calculated using a different method than the employer survey.
Powell has said that the economy may have to shed jobs in order to slow down the pace of growth in order to bring down prices. The Fed could hike rates at its upcoming meetings if the strength in the labor market continues.
Several economists said Friday they think the Fed could slow the pace of rate hikes to a half-percentage point, rather than the three-quarters of a point increases it has been approving at recent meetings.
The Stock Market and the First Fed Recession: An Overview from CNN Business Insider’s Andrew B. Powell’s Premarket Stocks Analysis
“No matter how many jobs that I can get in front of this camera and tell you how we’ve added and how great they are, people are still feeling the struggle at the kitchen table,” he said. The Biden administration is working to address rising prices with its Inflation Reduction Act, he added.
A version of this story first appeared in CNN Business’ The Bell newsletter came out before that. Not a subscriber? You can sign up here. You can listen to the audio version by clicking the link.
Stocks plunged earlier this month after the closely watched November jobs report showed a resilient labor market. They fell again on Thursday when weekly numbers showed the number of Americans filing for unemployment benefits fell, indicating a still-tight labor market.
Jon Stewart, the former host of The Daily Show, said after the meeting of the Fed that it might put them in a high unemployment recession.
It is possible that he is right but some economists still think there is hope for a Fed pivot if employment falls in the first half of 2019.
“Employment has not softened as much as I would have hoped, but I think jobs data will improve quickly”, said Jeremy Siegel of The Wharton School of the University of Pennsylvania in his weekly commentary.
Powell expressed optimism that a soft landing was still possible, and that the labor market was strong enough to handle an increase in unemployment without triggering a recession. The investors will be watching the numbers very closely.
Source: https://www.cnn.com/2022/12/19/investing/premarket-stocks-trading/index.html
The Rise and Fall of the House of Cards: Wall-to-Door Banking and the Christmas Shopping Season in the United States (by Chris Bankman-Fried)
It is not certain what time Bankman-Fried will appear in court. He is likely to return to the U.S. quickly if he doesn’t have to leave. After arriving in the US, he will appear before an American judge for a bail hearing.
The federal prosecutors from the Southern District of New York charged Bankman-Fried with eight counts of fraud and conspiracy. Bankman-Fried could face up to 115 years in prison if convicted on all eight counts against him, though he likely wouldn’t get the maximum sentence.
Bankman- Fried built a house of cards while telling investors it was one of the safest buildings in the internet, but according to US market regulators, he lied about it.
The Saturday before Christmas — also known as Super Saturday — is typically the busiest shopping day of the November-December gift-buying period. Super Saturday is on December 17th this year, because Christmas Eve and Christmas Day are both on a Sunday. 158 million consumers are estimated to shop that day according to the National Retail Federation.
Half of the gifts have been completed, according to the NRF. With less than a week to go until Christmas, and shipping deadlines approaching, people have more buying to do.
Source: https://www.cnn.com/2022/12/19/investing/premarket-stocks-trading/index.html
Retailers are Nervous to Deal With a Burgeoning Inventory of High-Lambda and Low-Cost Merchandise
Retailers spend a lot of money sitting on an oversupply of merchandise. Retailers who store merchandise in their own warehouse and distribution centers have a finite amount of space to work with, with some wiggle room to accommodate excess inventory. But costs add up if more space is needed for a protracted glut that they can’t quickly clear out.
Also, unsold products lose value over time. If the fashion trend has passed, savvy shoppers wouldn’t buy last year’s style. Stores are forced to heavily discount in order to make money.
Stores are tacking on free shipping for online orders this year, and are giving away 50% to 70% off during the final full weekend before Christmas.
“I’ve studied the holiday season for 20 years and haven’t seen discounting so dramatic,” said Ross Steinman, professor of consumer behavior at Widener University in Chester, Pennsylvania.
“Retailers are very nervous,” he said. “The clock is ticking and they know they have to maximize every opportunity now to get consumers to make purchases.”
The labor market was a key source of strength for households and the economy ahead of the holiday season despite hiring struggles, according to new government data.
Based on Wednesday’s labor turnover data, that gap grew wider in December: There was an average of 1.9 jobs available for each unemployment person that month.
JOLTS: Job Openings and Labor Turnover Survey: Predictions of a Rebalancing Fed and the Labor Market after the First Monetary Policy Meeting
Employees seeking wage increases to cover their costs of living amid rising prices could set off a cycle in which fast inflation today begets fast inflation tomorrow
The Job Openings and Labor Turnover Survey, or JOLTS, a monthly data set that’s closely watched by the Fed and markets, has seen its response rate fall sharply since the pandemic — it is now just under 31%.
“I would say it is a good thing the disinflation we have seen so far has not come at the expense of a weaker labor market,” Powell said in a news conference following the Fed’s first monetary policymaking meeting of the year. “But I would also say the inflationary process you see under way is really at an early stage.”
That could mean we are headed for a welcome, healthy rebalancing of the labor market — or a more worrying stall, said Julia Pollak, senior economist with ZipRecruiter.
Pollak will scrutinize the other areas of the jobs report beyond the headline indicators of payroll gains and unemployment when it is released on Friday.
The January 2020 high of 35 hours is down from what Pollak says was a time when employees had to pick up the slack as workers were scarce.
Pollak said the recent decline in temp staffing is due to a recovery in full-time, in-house hiring. If it falls below 3 million, that would be a warning sign.
Temporary and contract hiring can show where businesses expand and reduce their workforce at the margins, said Sarah House, senior economist at Wells Fargo.
“The fact that we see that paring down suggests that the demand backdrop is starting to soften, and maybe they just don’t see the reason to hire and expand as much as they had previously,” House said.
The labor force participation rate inched up two-tenths of a percentage point in December to 62.3%. Although that came following three consecutive months of declines, the percentage of people working or actively looking for work hovered between 62.1% and 62.4% throughout 2022.
The demographic changes of Baby boomers is one of the reasons why there’s possibly some information asymmetry happening.
“There are people outside of the labor market who aren’t working, and they just simply don’t know how needed they are right now,” he said. “And I think that’s a function of being a little removed. The world has changed pretty dramatically over the last two to three years, and it’s going to be difficult to show people that the skills they possess are needed right now.”
Why is the decline in macroeconomic responses to the Spanish trash survey so bad? A CNN interview with Julia Coronado, president and chief economist at Apollo Global Management
Julia Coronado, founder of MacroPolicy Perspectives and president of the National Association for Business Economics, said earlier this month that the decline in responses made the survey “basura,” the Spanish term for trash.
CNN spoke with the chief economist at Apollo Global Management about the decline in rates. The interview has been changed for clarity and length.
With the growth of spam and a decline in the number of telephone landlines there has been a structural decline in response rates and there is no easy solution to this problem, which is getting gradually worse and worse.
To what extent are declining response rates to surveys actually impacting the data we use? Is it possible that there are major gaps in the economy’s reading?
It is absolutely critical for the Fed and markets that the incoming data is as reliable as possible. For example, is the strong data we have seen in January for employment and retail sales a true description of what is going on? Is it driven by seasonal adjustments or the problems with the economic surveys?
When the macro data becomes unreliable there is a higher tendency to put weight on anecdotal evidence, which for example can be seen at the moment where the announced tech layoffs seem like a big deal — but they are basically irrelevant when compared with the recent data in the latest employment report for January, where the economy created 517,000 jobs.
The leisure and hospitality sector alone added 128,000 jobs in January, more than all tech layoff announcements combined. Is this a true description of what is going on or is the source of this discrepancy some measurement problems with the data we are looking at?
Source: https://www.cnn.com/2023/02/27/investing/premarket-stocks-trading/index.html
Premarket Stocks Trading: Buffett’s Letter to Investors and a Political Threat to the Company and the U.S. Bank
There were large losses reported by the group on Saturday. In total, it lost about $22.8 billion in 2022 — with around $53.6 billion in unrealized losses on its investments.
Still, Buffett pointed to the company’s operating earnings in his annual letter to investors — those are the profits that come from businesses and not stock holdings, and are Buffett’s preferred measure of profitability. The earnings increased by more than $1 billion every year, reaching $30.8 billion in the year that ended in December of 2022, according to the earnings report.
The 92-year-old “Oracle of Omaha” wrote that “when you are told that all repurchases are harmful to shareholders or to the country, or particularly beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongued demagogue (characters that are not mutually exclusive).”
The investor day will take place on Tuesday. This will be a big one for the company’s leaders as they hope to reset after a 2022 that saw the bank’s profits slump by nearly half.
The company said last week that it has lost almost $3 billion in the last two years, and that it will have an investor meeting this week. The bank has recently undergone a series of layoffs and CEO David Solomon has faced criticism, and a pay cut, from shareholders.
The number of places to eat in the US could fall even further this year as a result of Covidien’s decline, according to Technomic.
A coalition opposing a California law that could raise the minimum wage to up to $22 an hour has received $1 million in contributions from five fast food companies.
Source: https://www.cnn.com/2023/02/27/investing/premarket-stocks-trading/index.html
The State of the Economy in the Light of a Recent Survey by the American Association for Business Economics (ACS), I. The Future of the U.S. Economy
In a time when the economic data has been mixed and busted expectations exist, the predictions of economists for the year ahead are growing more opaque.
The president of the National Association for Business Economics said the survey shows there is a significant divergence among people about the future of the US economy.
Projections of inflation-adjusted GDP, inflation, labor market indicators, and interest rates are all widely disparate, reflecting differing opinions on the fate of the economy.