The data, however, do not speak.
“The rose-tinted vision of being able to reduce the tightness of the labor market by reducing the number of job openings is slowly being realized,” said Gregory Daco, chief economist at EY-Parthenon. “We are now implicitly aware that to cool the labor market there will have to be a significant increase in the unemployment rate and that job growth will have to cool with potential job losses.”
Those numbers can go south pretty quickly, Daco said.
“I wouldn’t be surprised that in an environment where companies are more cautious and apply more discretion in hiring decisions, we could see some net potential job losses by the end of the year,” he said.
“The average manufacturing workweek contracted in four of the last six months – a significant sign as companies cut hours before cutting staff,” Ozyildirim said in a statement. “Economic activity will continue to slow more broadly across the US economy and is likely to contract. A major driver of this slowdown has been the Federal Reserve’s rapid tightening of monetary policy to combat inflationary pressures.”
Several factors at play
The Fed cannot “click its heels three times, raise rates and lower inflation,” Frick said.
“There are a number of factors going on right now, and it’s a mistake to think that the Fed controls more than a few of them,” he said.
“I think if the Fed is wrong that raising rates, even to 4% or more, will tighten the labor market because we’re still over 4 million jobs below the pre-pandemic trend, and employers are still making money, and employers still need to hire people. they have,” said Frick. “And really, at this point, it’s like saying don’t let the tide go in – expect the job market to soften.”
The main reason Fed Chairman Jerome Powell wants a slower pace in the labor market is his concern that a tight employment situation will keep wages up, which could keep inflation high. As the unemployment rate rises, workers lose their bargaining power for higher wages and households hold back on spending.
“Powell said that wage increases that affect inflation haven’t happened yet, but he sees it happening in the future,” Frick said. “This is all very theoretical at this point. And I understand that if you want to reduce demand, one way to do that is to increase unemployment … but I really think it’s an open question whether it’s a problem now.”
There is no “pain free” way
To do this, American workers may have to suffer pain caused by a problem not of their own making.
“It’s unfair,” Frick said. “But nobody ever said the economy wasn’t cruel at times.”
“The level of growth is very slow, and it could lead to increases in unemployment, but I think that’s what we think we should have,” Powell said. “We believe that we also need to have softer labor market conditions. We will never say that too many people are working, but the real issue is this: Inflation is what we hear when we meet with people. They are really experiencing inflation.”
“If we want to establish ourselves, if we want to clear the way for another period of a very strong labor market, we have to leave inflation behind. I wish there was a painless way. There isn’t,” he added. .
The next set of key employment data, including openings, layoffs and monthly job gains, will come in the first week of October when the Bureau of Labor Statistics releases its Survey of Job Openings and Labor Turnover and its monthly jobs report for September.
Jobless claims data released Thursday showed that initial claims for jobless benefits totaled 213,000 in the week ended Sept. 17, according to the Labor Department. The previous week’s total of 213,000 was revised down by 5,000. The weekly claims, which remain near their lowest levels in months, underscore how employers are holding on to workers as the labor market remains full of opportunities for job hunters.