America’s Booming Labor Market Suddenly Isn’t Any More

Placeholder while loading article actions

The Federal Reserve finally seems to be getting what it really needs in its fight to tame inflation: a chill in the scorching labor market. Although recent data suggests a firming economy, with consumer confidence, manufacturing and personal spending beating all forecasts, buried deep within these reports is more compelling information about the Fed’s ability to rein in the inflation without forcing the economy into recession.

First, the Conference Board said on Tuesday that its monthly consumer confidence index for May was 106.4, which was higher than all but one of the 54 economists’ forecasts collected by Bloomberg. Still, the part of the index measuring the difference between those who say jobs are plentiful and those who say jobs are hard to come by capped its biggest two-month drop since the depths of the financial crisis earlier this year. 2009, excluding the pandemic era. The 7.8-point decline during April and May “is quite notable and generally consistent with a recession,” Tom Porcelli, chief U.S. economist for RBC Capital Markets, wrote in a research note on Tuesday.

Second, the Institute for Supply Management said Wednesday that its factory activity indicator rose to 56.1 last month from 55.4 in April. The level exceeded all but two of more than 60 economist forecasts collected by Bloomberg. Again, however, jobs were a weak point. The employment portion of the index fell below 50, the dividing line between growth and contraction, for the first time since November 2020. At the time, the economy was losing jobs the following month.

For the first time since the economy began to reopen after the Covid-19 lockdowns, we’re hearing of more companies abandoning hiring or cutting jobs outright. Major venture capital firm Sequoia Capital told the founders of its roughly 250 portfolio companies in a Zoom call last month that the current environment is a “critical time” to make the case for a long and slow recession. prolonged. After adding more than 1,500 employees over the past year, grocery delivery startup Instacart Inc. said last week that it plans to slow the pace of hiring as it prepares for a bid. initial public, focusing instead on profitability. Pandemic-era darlings like fitness company Peloton Interactive Inc. have laid off workers. There is really no need to worry about the overall health of the economy. The Labor Department said Wednesday that job openings remained high in April, near record highs, representing about double the number of unemployed Americans. And in many ways, especially with companies like Peloton stepping up hiring during the pandemic to meet a surge in demand, the new workforce approach feels more like normalizing or resizing. than at the start of a recession led by large layoffs. RBC’s Porcelli has made it clear that he is not saying the economy is in a recession, but rather “between labor force differences, initial jobless claims appearing to have bottomed out, and some companies are talking now to reduce their numbers, the social context seems set to ease.

The current situation means that the Department of Labor’s critical monthly jobs report this Friday could be the rare situation where a bad report could be seen as good news. (The median estimate of economists polled by Bloomberg is that the government says 325,000 jobs were added in May, the fewest since April 2021.) As my Bloomberg Opinion colleague Conor Sen pointed out, the Fed has says the labor market is unbalanced and needs to soften at least a little if he hopes to get inflation under control. The reason is that wage gains, a major driver of inflation, have averaged 5.3% year-on-year since October, double the pre-pandemic average between 2014 and 2019. according to the Department of Labor.

Seeing the boil out of the labor market would go a long way to helping the Fed get inflation under control while steering the economy toward an elusive soft landing. This would likely mean fewer interest rate hikes than the markets are currently expecting. More other writers at Bloomberg Opinion:

• Fed’s subdued inflation forecast needs explaining: Bill Dudley

• Is a recession coming? Beware of this indicator: Kathryn Edwards

• Labor market heading for a soft landing: Conor Sen

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Robert Burgess is the editor of Bloomberg Opinion. Previously, he was Global Editor of Financial Markets for Bloomberg News.

More stories like this are available at


Comments are closed.