The Burning Glass Institute: The Growth and Growth of the U.S. Labor Market During the May-October 2018 Low-Inflationary Season
The Burning Glass Institute has a chief economist named Gad Levanon. He was the head of the Labor Market Institute at The Conference Board. His opinions are not those of the commentary.
However, the decline in GDP reflects a slowdown in the economy more broadly. Household incomes are being squeezed by decades high inflation, interest rates are rising and business and consumer confidence is weakening.
Consumer prices soared by 7.1% year-over-year in November. At almost any other point in the past 40 years, that would be alarmingly high. But this marked the fifth-straight month of improvement and a significant cooldown from 9.1% in June. It’s also the lowest annual inflation rate in nearly a year.
Hiring remains surprisingly resilient. The unemployment rate is 4.3%, and it was nearly 15% in the spring of 2020.
The increase in new science, technology, engineering and mathematics (STEM) jobs was spurred by the increased corporate investments in software and R&D. Because these workers are especially well paid, they have had plenty of disposable income to spend on goods and services, which has supported job growth throughout the economy.
Next year, however, will look very different. Many industries that have not fully recovered from the Pandemic have reached their pre-pandemic employment levels. Slower hiring is possible if demand is saturated. But this alone is unlikely to push job growth into negative territory. Monetary policy is what that will do.
Reducing demand for workers or increasing the labor supply is two ways to curb the labor market. 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 going to be hard to find in today’s political environment.
Job growth eased slightly in September but remained robust, indicating that the economy was maintaining momentum despite higher interest rates. The strong showing made many investors unhappy, as they saw signs of the fight against inflation becoming tougher.
“If I had just woken up from a really long nap and seen these numbers, I would conclude that we still have one of the strongest job markets that we’ve ever enjoyed,” said Carl Tannenbaum, chief economist at Northern Trust.
Goldman said last week that it still believes the US economy won’t get into a recession and instead will reach a soft landing where inflation moderates but growth continues.
Jan Hatzius, chief economist of Goldmans, wrote in a report that they still believe there is a non-recessionary path to a low inflation economy of the future.
By contrast, a Bloomberg Economics model released in late October determined the risk of a recession over the next 12 months stands at a staggering 100%. A model created by Ned Davis Research found a 98.1% chance of a global recession.
But Goldman Sachs pointed out the transition to more sustainable — but still positive — economic growth “has already occurred, and it looks durable.” The bank expects gross domestic product growth of about 1% over the next year.
Goldman Sachs concedes that there has been “much less progress” on the price side. Inflation metrics have mostly stopped getting worse but they also haven’t really got any better either.
The United Kingdom, which is the G7’s largest economy, has contracted in the third quarter for the first time since 2012 and is 0.4% smaller than it was at the end of 2019.
Manufacturing was the main driver of the fall and saw declines across most industries. Services were flat but consumer-facing industries suffered with a notable fall in retail.
The extra bank holiday for the funeral of Queen Elizabeth II played a role when some businesses closed or adjusted their operations that day, the ONS said. GDP fell in September.
“Lower consumer spending appetite is likely to help push GDP into a second-straight contraction during the fourth quarter,” James Smith, developed markets economist at ING, said in a note on Friday.
The Bank of England warned last week that the UK economy could experience its longest recession since the 1940s. And the third quarter contraction contrasts with expansion of 0.2% in France and Germany, and growth of 0.5% in Italy.
The Commission believes GDP growth will remain positive in the euro area in the next two years. By contrast, the Bank of England predicted last week that there would be a two-year recession in the United Kingdom.
“As inflation keeps cutting into households’ disposable incomes, the contraction of economic activity is set to continue in the first quarter of 2023,” the Commission said in a statement.
“Under almost any scenario, the economy is set to have a difficult 2023,” Moody’s Analytics chief economist Mark Zandi wrote in a report on Tuesday. “But inflation is quickly moderating, and the economy’s fundamentals are sound. The economy should avoid a downturn with some deft policymaking by the Fed and a bit of luck.
Friday’s GDP figures “solidify the picture that the economy is moving towards recession, if not already in one,” David Bharier, head of research at the British Chambers of Commerce said in a statement.
Weak economic growth has put a lot of pressure on the UK government, which is trying to reestablish its credibility with investors, following a run on the pound and a bond market crash.
Jeremy Hunt reversed most of her plans in the first few days on the job and is expected to announce a number of tax hikes and spending cuts next week in a move to reduce debt in the medium term.
There is a tough road ahead, one that will require difficult decisions to restore confidence and economic stability, Hunt commented on the GDP figures. To achieve sustainable growth, we have to control inflation, balance the books and eliminate debt. There is no other way.”
Fed Rates Increased Over the Last 12 Months, and Consumer Prices Rise Over The Last Two Months Compared to October 2002 and November 2000
Wednesday is when the Federal Reserve is expected to raise interest rates. But investors are hopeful it will be a smaller increase than the last four hikes.
Traders are betting on just a half-point increase. Federal funds futures on the Chicago Mercantile Exchange show an 80% probability of a half-point hike.
The hope is that the Fed can use the gradual rate hikes it has decided on to avoid crashing the economy into a recession.
But it may not be that simple. The government reported Friday that a key measure of wholesale prices, the Producer Price Index, rose 7.4% over the past 12 months through November. It was a bit higher than expected but still less than October’s 8% increase.
The more widely watched Consumer Price Index data for November comes out Tuesday, just a day before the Fed announcement. The year-over-year increase in the inflation rate was 7.7% through October.
“Inflation has probably peaked but it may not come down as quickly as people want it to,” said Kathy Jones, chief fixed income strategist for the Schwab Center for Financial Research.
The Fed has hiked rates this year, but it has had limited impact on the economy. Yes, mortgage rates have spiked and that has severely hurt demand for housing, but the job market remains strong. Wages are growing, and consumers are still spending. That can’t last indefinitely.
Wednesday: Fed meeting; EU industrial production; UK inflation; earnings from Lennar
(LEN) and Trip.com
(TCOM)
“A pivot or pause is not a cure-all for this market,” said Keith Lerner, co-chief investment officer at Truist Advisory Services. “Rate cuts may be too late. The risks of a recession are still high.
Economists are actually forecasting a small dip of 0.1% in retail sales from October. It is important that it is put in context. Retail sales increased over the last few months and over the last year.
Consumers may have gotten a head start on holiday shopping. Inflation has an effect on the numbers too, since retail sales have been impacted (positively) by the fact that people have to spend more money for stuff.
Everyone is talking about inflation this year. Going forward, it will be more about disinflation in 2023 or 2024,” said Arnaud Cosserat, CEO of Comgest Global Investors.
What does Cosserat think about the future of the US economy and what does it tell us about it? What do we need to know when we are going through a hard recession?
What does that mean for investors? Cosserat said people should be looking for quality consumer companies that still have pricing power and can maintain their profit margins. Two stocks that his firm owns that he said fit that bill: Luxury goods maker Hermes
(HESAF) and cosmetics giant L’Oreal
(LRLCF).
Friday: Eurozone PMI; UK retail sales; earnings from Accenture
(ACN), Darden Restaurants
(DRI) and Winnebago
(WGO)
It can help cause a recession by talking about it. How people feel is a huge driver of consumer behavior and business planning. Keynes said that what drives investors, consumers and business leaders was “animal spirits”. Fear, hope, uncertainty and confidence are all important to how the economy fares.
He said that it was a negative cycle that he got into. When sentiment is not okay and starting to feed itself, we run the risk of talking ourselves into one.
“This is one reason to the be optimistic the economy could skirt a recession,” Moody’s Analytics chief economist Mark Zandi told CNN on Thursday. “Without mass layoffs, it’s unlikely consumers will stop spending and the economy suffer a downturn.”
But he added, “If I didn’t watch business shows or read the Wall Street Journal, the word recession wouldn’t be in my vocabulary because we just don’t see it in our data.”
Federal Reserve Chairman Jerome Powell has made it clear the Fed isn’t anywhere near ready to hit the gas on the economy by cutting rates. But just removing its foot from the brake would be a positive.
Jamie Dimon, CEO of JP Morgan Chase, has expressed concern about the upcoming recession due to rising interest rates and consumer spending down their savings.
“When you’re looking out forward, those things may very well derail the economy and cause this milder or hard recession that people are worried about,” he said earlier this month.
With inflation still at the highest level in a generation and central banks around the world continuing to raise interest rates, the risks for 2023 are undoubtedly high.
It was a brutal period for the stock market, with roughly one-fifth of the value of the S&P 500 vanishing and the Nasdaq dropping by more than one-third. All three major US markets suffered their worst years — by far — since 2008.
The Good, the Bad, and the Ugly: What Has the US Economy Learned Since the First Day of a Slow Recession?
New numbers published last week show first-time applications for unemployment benefits edged up to 225,000. That’s still low historically and almost exactly where jobless claims were a year ago, long before recession fears emerged.
Gas prices have plummeted after spiking above $5 for the first time in June. The average price of regular gasoline has been at an 18-month low, but is still at $3.22 a gallon.
But that trend has begun to reverse, at least when measured on a monthly basis. Real wages have been growing faster than consumer prices, a significant shift that could give consumers firepower to keep spending next year.
The fear is that the Fed will eventually overdo it, raising rates so high and keeping them there for so long that it causes a recession — if the Fed hasn’t already done that.
Moody’s said in a slowcession — a phrase coined by Zandi’s colleague Cristian deRitis — economic growth “comes to a near standstill but never slips into reverse.” Unemployment would rise, but not spike.
With the Federal Reserve slamming the brakes on the US economy to snuff out inflation, business leaders and CEOs have grown increasingly confident about a 2023 recession.
Wolfers says inflation has been falling as jobs have increased, from 9% to about 6. The soft landing, he says, has landed.
Shoppers are the key to an economy that is not in a recession. “While the firewall is sure to come under pressure, particularly as financially hard-pressed low-income households struggle, it should continue to hold.”
Zandi also pointed to relatively strong fundamentals in the US economy, including profitable businesses, healthy consumer balance sheets and a banking system that is “on about as strong financial ground as it has ever been.”
The Moody’s economist noted the economy is not plagued by troubling imbalances that were glaring before prior recessions, such as overbuilt real estate markets or massive asset bubbles.
Is there a soft landing in our nation’s future? An economist at the University of Michigan tells us how it’s going through a recession
The economy gets smaller when there’s a recession. Normally, when that’s happening, you feel it, people get laid off, businesses shut down and everything starts going on super sale.
A lot of the most important numbers are in: jobs and unemployment data, data about prices, debt and credit, and (the big one) economic growth itself (aka Gross Domestic Product).
“We don’t quite know what’s going on,” says Raguhram Rajan, an economist and professor of finance at the University of Chicago’s Booth School of Business. “This situation is relatively unprecedented.”
At the root of this confusion: inflation. The Federal Reserve raised interest rates last year in order to bring down prices.
Raising interest rates is intended to slow spending. Higher interest rates make it more expensive for people and businesses to borrow money, so they borrow less, spend less and ultimately buy less.
She looks at things like housing permits, consumer confidence, manufacturing data and factory orders. And a lot of those indicators are hinting at a recession.
The thousands of layoffs we’ve seen this year, as well as the rising price of basics like food, electricity and gas, the rising credit card debt we’re seeing and the fact that consumers spent less than expected during the holiday shopping season is all related to the rising price of basics
It is the reason? In a typical recession companies lay off employees, but they aren’t planning to do that now that it’s harder to find workers. This recession may look different than other recessions.
It is possible that there is not a recession at all. Justin Wolfers, an economist at the University of Michigan, says all of the recession talk he’s been hearing seems absurd to him.
Wolfers sees a soft landing in our country’s future: Demand for stuff might drop off a bit — enough to get companies to lower prices and bring down inflation — but not enough that they’d be losing a bunch of money and start shrinking significantly.
He says that his group is celebrating unemployment being at a 50-year low of 3.4%. Earlier generations of economists had said that the levels were impossible.
Not only that, Wolfers points out that this kind of job growth is almost miraculous after what the economy went through just three years ago at the start of the pandemic.
I wouldn’t have believed you had said “In three short years, we’ll yield an unemployment rate you’ve never seen before” because the world was closing down and unemployment was spiking.
Rajan is concerned that if layoffs do get rolling companies will start to relax about finding people to fill jobs, and things might change really fast.
It’s not that difficult to hire if firms look around and say that. and we’re holding onto these people… Everybody gets the idea that we should clear the deck at the same time. We could see hundreds of thousands of people lose their jobs all at once,” he says.
The risk is compared to the old Wile E. Coyote cartoons. “He’s run off the edge of the cliff, but he hasn’t realized it and then he looks down, realizes he’s over the cliff, and he falls.”
Source: https://www.npr.org/2023/02/17/1157456149/is-the-economy-headed-for-recession-or-a-soft-landing
“Shocks and shortages do not pretend that the economy is clean and neat,” a Pedestrian in San Diego (Calif.)
Dana says the economics in school are clean and neat. “It doesn’t assume that you have shocks or labor shortages. Those are weird things that economic models can’t always handle.”