However, the data does not taint the words.
“There is a gradual realization that the rosy view of the ability to reduce labor market tightness by reducing the number of job vacancies is gone,” said Gregory Daco, chief economist at EY-Parthenon. “We now have the tacit realization that in order to cool the labor market, a significant increase in the unemployment rate will be required and employment growth will need to be cooled with potential job losses.”
Those numbers could go south relatively quickly, Dako said.
“I wouldn’t be surprised that in an environment where companies are more cautious and apply more discretion in their hiring decisions, we could see potential net job losses by the end of the year,” he said.
“The average workweek in manufacturing has shrunk in four of the past six months – a milestone, as companies reduce working hours before reducing their workforce,” Ozeldirim said in a statement. “Economic activity will continue to slow more broadly across the US economy and is likely to contract. The main driver of this slowdown has been the Federal Reserve’s rapid tightening of monetary policy to counter inflationary pressures.”
Countless factors at play
Frick said the Fed can’t “squeeze its heels three times, raise interest rates and lower inflation.”
“There are a myriad of factors going on now, and it’s a mistake to think that the Fed controls more than a handful of them,” he said.
“I think the Fed is wrong if it thinks that raising interest rates, even to 4% or higher, will weaken the labor market, because we are still less than 4 million jobs in the pre-pandemic trend, employers are still making money, and still Employers have to hire people.” “And really, at this point, it’s like telling the tide not to come – expecting the labor market to weaken.”
One of the main reasons Fed Chairman Jerome Powell wants more slack in the labor market is concern that the tight employment situation will continue to raise wages, which could lead to higher inflation. As unemployment rises, workers lose bargaining power for higher wages and families fall back on spending.
“Powell said wage increases that contribute to inflation haven’t happened yet, but he sees them happening in the future,” Frick said. “This is all very theoretical at this point. And I understand that if you want to reduce demand, the way to do that is to increase unemployment…but I really think it’s an open question whether or not that’s a problem now.”
There is no “painless” path forward
To that end, American workers may have to bear the brunt of the pain because of a problem they did not cause.
“It’s unfair,” Frick said. “But no one ever said the economy wasn’t so tough sometimes.”
“That’s a very slow level of growth and it could lead to more unemployment, but I think that’s something we think we need to achieve,” Powell said. “We think we need softer labor market conditions as well. We would never say there are too many people working, but the real point is: inflation, what we hear from people when we meet them is that they are really suffering from inflation.”
He added, “If we are to position ourselves, and light the way to another period of a very strong labor market, we have to put inflation behind us. I wish there was a painless way to do it. There isn’t.” .
The next batch of key employment data, including job vacancies, layoffs and monthly job gains, will come in the first week of October when the Bureau of Labor Statistics releases its Job Opportunity and Employment Turnover Survey and monthly jobs report for September.
Unemployment claims data released Thursday showed that the number of first-time applications for unemployment benefits was 213,000 for the week ending September 17, according to the Labor Department. The previous week’s total of 213,000 was revised down by 5,000. The weekly claims, which are still near some of their lowest levels in months, underscore how tightly employers are holding onto workers as the job market remains rife with opportunities for job seekers.