The Fed is Getting Closer to Stagfying. Why the U.S. Job Market is Growing Stronger than It Has Been Last Year
The unemployment rate is expected to cool, as higher interest rates makes it harder for businesses to grow. Even as other parts of the economy, like the housing market, have been falling, hiring has been remarkably resilient.
These factors are spurring positive momentum that will not disappear overnight. It is likely that employment growth will be slower than it has been before, but will still remain strong in the coming months. ManpowerGroup’s Employment Outlook Survey shows that the hiring intentions for the fourth quarter are still very high, despite dropping from the previous quarter.
When Eric Hart was chief financial officer at the time he told investors that there could be an opportunity to hire more people in the coming months.
Stagflation is unpleasant because of the risk of wages going down too much. Stagflation – a portmanteau of stagnation and inflation – is when economic activity slows while prices continue rising.
In 2022, a strong job market in normal times is the kind of news that might be celebrated, but it suggests the economy is overheating. On Wednesday, 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.
Some economists have begun questioning how much the Fed really cares about job openings. Other signals, like the unemployment rate, show the labor market is strong, but not nearly as strong as openings would imply.
The United States economy added 2.3 million jobs in the last six months of the year, far more than any other period in the last 20 years, as GDP fell at an an annual rate of 1.1%.
Things are still pretty robust when compared to those pre-pandemic normal times. And that’s part of what is keeping inflation elevated.
Over the last 12 months, wages were up 5.2%. That is historically high. It doesn’t keep up with inflation which is around 8% a year.
The Fed has a particular problem with wages. It wants us to shop just a little less – but not a lot less. Unfortunately, there’s no magic formula for how much wages need to go down to make a dent.
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’s hard to overstate just how delicate the situation is. Kristalina Georgieva, the head of the International Monetary Fund, described the world as in a period of historic weakness after a torrent of economic shocks over the last two and a half years.
That is why the Fed’s decisions are being closely scrutinized. When the Fed raises rates quickly, it will cause other central banks to raise their rates as well, pushing the US dollar’s value up and forcing them to do the same. All of which could tip the world’s biggest economies into a recession, the UN has warned.
Nightcap Jobs in the Ford F-150: Dealing with Musk in the Court of Arbitrary Describing the Economic Impact of Price Increases
Ford is, once again, raising prices on its first electric pickup, the F-150 Lightning. The company said the entry-level truck will cost around $52,000, up significantly from $40,000 when it went into production this spring.
State media says President Alexander Lukashenko banned all price increases in the economy. “From today, any price increase is prohibited. Prohibited!” the president is quoted as saying.
A source told CNN that lawyers for the two companies agreed to put off Musk’s deposition in the court fight. 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 talking about different issues.
Source: https://www.cnn.com/2022/10/06/business/nightcap-jobs-report/index.html
Amazon’s only unionized warehouse has been shut down since the last cut-and-return of CEO Barry McCarthy’s major changes’
Boston Dynamics, which was behind the video of its four-legged robot, is promising not to weaponize their products and encouraging others in the industry to do the same. According to the letter, the company is worried that customers won’t believe them if they say they aren’t building an army that will destroy humanity. They have now said that they are not doing that. I’m pretty sure that’s right!
When it was at its highest level, it had more than 4,000 employees but after letting go of 500 more, it will be left with around 3,800. The company said the latest cut marks the last of CEO Barry McCarthy’s \major changes to restore the brand. And if it fails, McCarthy told The Wall Street Journal, Peloton likely isn’t viable as a stand-alone company. He’s giving it another six months.
(CNN Business) Workers at the only unionized warehouse for Amazon were temporarily suspended on Tuesday after they decided to go on strike following the fire. Workers said the smoke from the fire made it difficult to breathe in and that some parts of the building still smelled of smoke. The workers walked off the job.
The Federal Reserve’s First Year’s Job Creation and Hiring: Inflationary Constraints from a Survey for the Institute for Supply Management
“I think this is good news for the Federal Reserve,” said Nela Richardson, chief economist at the payroll processing firm ADP. “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. “So people are a lot more cautious, so we do a survey for the Institute for Supply Management.”
Manufacturing represents a small slice of the overall workforce, however. There was no slowdown in hiring in the ISM survey.
A number of jobs were created in restaurants, retail and professional services last month according to a report by the private company, Automatic Data Processing.
Health care, food services, and the arts have shown an increase in employment, but other areas of the economy such as finance, residential construction, and car dealerships are showing declines.
Richardson said the more people come back to the labor market, the more likely it will be that there will be some easing in hiring conditions.
In September, job openings increased again to over 10 million. That increase meant there were roughly 1.9 job openings for every unemployed worker. The amount of people quitting their jobs was little changed, but it was still high and a sign of confidence in workers. Layoffs overall have stayed low.
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 lots of options, workers are demanding higher wages and managers are forking out higher pay, which increases demand for goods and services and thus drives up prices.
Cook and her fellow Fed board members made it clear to the public that interest rates would remain elevated unless there was convincing evidence that prices are falling.
“Inflation is too high, it must come down, and we will keep at it until the job is done,” Cook said Thursday, in her first public speech as a central bank policymaker.
The Rise and Fall of the US Economy: Commentary on Gad Levanon’s Critique of the Economy and Implications for Labor Market Dynamics
Editor’s Note: Gad Levanon is the chief economist at the Burning Glass Institute. He was the former head of The Conference Board’s Labor Market Institute. His opinions are not the same as those in this commentary.
The US economy is a dichotomy for many economists and analysts. On the one hand, GDP growth has slowed significantly, and some argue, even entered a recession. Employment growth has been much better than normal.
Some industries are growing because they’re still catching up, and others are growing as they adjust to the increased demand. Data processing and hosting services, mental health services, testing laboratories, medical equipment, and pharmaceutical manufacturing are all more in demand now than before the pandemic. Structural changes to buying practices are likely to keep demand high.
Next year, however, will look very different. Many industries that are still working have reached pre-pandemic employment levels. The industries may hire at a slower pace if demand isn’t enough. This alone is not likely to push job growth into negative territory. What will do that is monetary policy.
There are two ways to rein in the labor market: Either reduce demand for workers or increase the labor supply. 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.
Fed officials have been hoping that as interest rates rise, companies would respond by cutting back on recruitment. We have only limited evidence of this trend so far.
Pollak told CNN Business that the reopening of schools would be a great time for people who left the workforce in the middle of the Pandemic to return to work. Some of the people that left may not return.
Fed Rate Increases, Job Creation, and the Implications for Work, Education, Child Care and Transportation in the Post-Pendulum Era
The decline in the number of people looking for work has resulted in the unemployment rate falling to its half-century low.
“That appears to be a certainty for the upcoming meeting in early November. The magnitude of future rate hikes is going to become clearer as we get closer to the final two policymaking meetings of the year.
The Fed raised interest rates by three-quarters of a percentage point on Wednesday, signalling plans to keep increasing them, even though it said it might slow the pace of increases. Their next rate decision is scheduled for Dec. 14.
However, that pace is unsustainable, said Dean Baker, senior economist at the Center for Economic and Policy Research. He said that it would most likely be better for the Fed if monthly job gains fall to 200,000 or less.
He said that the H1N1 disease forced restaurants to offer online ordering and other services at a larger scale, as customers became comfortable using those services. 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.
In addition, while private sector employment returned to pre-pandemic levels earlier this year, public sector employment remains nearly 600,000 jobs, or 2.6%, below levels seen in February 2020, BLS data shows.
As the labor market feels the influence of Fed rate hikes, the recovery is growing more complex, Pollak said.
Net job losses in support industries such as education, child care and trucking may be a troubling sign because of the expected decline in these sectors during a high interest rate period.
“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 certainly impact [parents’] long-term and future economic and work prospects.”
Dionne Nelson, the founder and chief executive officer of Laurel Street, said that they are not anticipating a recession at this time. “We’re still very busy. We are still hiring. Our markets are still very active.”
The JOLTS Labor Open Job Search Survey: Evidence for Job Openings, Quitting, and Layoffs in the United States after the September 4 Fed Rate Cutoff
Fresh data about the health of the labor market on Friday paved the way for the Fed to raise interest rates next month, raising costs for companies and weighing on stock prices.
The S&P 500 fell on Friday due to interest rate sensitive sectors. Government bond yields, indicative of the future path of interest rates, rose and the dollar strengthened.
Job growth eased slightly in September but remained robust, indicating that the economy was maintaining momentum 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.
“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.
The pandemic left a lasting mark on the U.S. economy. More people are working in warehouses today than in February 2020, and fewer in restaurants. Some parents are being forced to either work part-time or not at all because of the shortage of child care. Researchers have been able to come up with different estimates on how many people are out of work.
Getting there has been a challenge. As vaccines became widely available and businesses reopened last year, employers suddenly had more jobs to fill than applicants available to fill them. That was good news for workers, who were able to jump between jobs and negotiate for higher pay. But it almost certainly helped feed into 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. Instead of falling to 10 million, it exploded to more than 10 million.
The logic behind Powell’s attention on job openings is simple. They are a direct measure of demand, since employers typically don’t try to hire when no one is buying their products. And they have a clear connection to wage growth — and therefore inflation — because when lots of companies are hiring, they have to pay more to compete 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 rarely jump employers without a boost in pay, wage growth benefits from job-switching. The data that was released by the payroll-processing giant showed that people who left jobs in October saw their pay rise more rapidly than people who stayed.
“Reducing inflation is likely to require a sustained period of below-trend growth and softening of labor market conditions,” Powell said Wednesday. It is important to reestablish price stability in order to achieve stable employment and stable prices in the long run.
The odds of a recession are high if not guaranteed, according to analysts. 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.
Democrats hoping to hold on to power next week should realize that inflation is more important than job security. A new CNN poll shows that most likely voters think the country is in a recession.
Nightcap Housing Crisis: More Boomer Families are Rejoinded by Their First-Time Homebuying Experience with Mortgage Rate Rises
More bad news for the younger Millennial and Gen Zers hoping to buy their first home: The typical age of a first-time homebuyer is now a record 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.)
As that 2020 housing boom begins to go bust, those who managed to close on a home in the crush of competition fed by rock-bottom mortgage rates should count themselves extremely lucky.
According to the new report, first-time buyers make up just 26% of all buyers in the year that ended in June, and that is an all-time low.
Jessica Lautz is the vicepresident of demographic and behavioral insights at the National Retail Federation. “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!)
Policies that regulate land use and production of housing makes it hard to add more homes in desirable locations, according to Jenny Schuetz, an urban economist.
Rather than rebuilding within existing neighborhoods, housing supply has expanded through “sprawling single-family subdivisions at the urban fringe.” It is putting more people and homes in areas that are vulnerable to fire.
Now is a good time for federal and local governments to think about the way they frame the American Dream, as affordability reaches crisis levels. If those who are to benefit are better represented in elected office, then that will happen. Schuetz thinks that the Boomer’s reluctance to change the system that got them where they are is understandable.
Source: https://www.cnn.com/2022/11/03/business/nightcap-housing-crisis/index.html
The UK Central Bank’s Fourth-Strong Interest Rate Rises 33.5 Points, and the U.S. Labor Rate is Up to 3.6%
The Bank of England followed in the footsteps of the Fed, raising its key interest rate by the same amount for the first time in 33 years. The European Central Bank took similar actions last week.
TheBasispoints are how central bankers talk about rate moves. One basis point is one tenth of a percentage point.
That kind of news can be celebrated in normal times. But in the up-is-down economics of 2022, it’s cause for concern, as it suggests the economy is overheating. 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.
The report offered a final glimpse of the economy before the midterm elections next week, and it will almost certainly make its way into both parties’ closing pitches to voters.
The report show the difficult task that still lies ahead for the Fed in wrestling with a resilient labor market and sticky inflation. The low reading was disappointing for investors hoping for a dovish Fed quicker than later, but it was the lowest reading in almost two years.
It was expected that the unemployment rate would go up to 3.6%. The unemployment rate is calculated using a survey of households, not the employer survey.
As the Fed attempts to rein in economic growth as a way to counter higher prices, it is possible that the economy may have to let go of jobs. The continued strength in the labor market could leave the door open for the Fed to continue to hike rates at its upcoming meetings.
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.
Inflation and the CP Violations: What are we missing? The case of the Biden government and the Kochian regime
“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.