- The latest jobs data from the Bureau of Labor Statistics shows a still robust labor market in the United States.
- This is both bad and good news for the Federal Reserve, which is trying to cool the economy.
- But the latest data also means that a coming recession could be more tepid than the last.
A recession may be on the country’s horizon, but it probably won’t look like most Americans would expect to see.
As inflation continues to soar in the United States, the Federal Reserve has taken aggressive action to combat high prices by raising interest rates. The central bank raised rates by 0.75 percentage points on Wednesday – the fourth consecutive time it has done so on this scale – and it remains on track with a message from Fed Chairman Jerome Powell , according to which the economy will have to experience “a little pain” to get inflation under control.
But on Friday, new data from the Bureau of Labor Statistics showed the labor market remains strong. The United States added 261,000 jobs in October, above estimates.
The strength of the labor market complicates matters for the Fed. While its goal is to lower prices for Americans, the challenge comes from being too aggressive – raising interest rates can slow the economy, but it also risks causing a recession.
Friday’s jobs report, however, could put those concerns at bay as it shows the economy is on course for a so-called growth recession, defined as a shallow contraction that is still characterized by a strong labor market. The latest data seems to align with the Fed’s ultimate goal of inducing this type of gradual and manageable recession.
“I don’t think it changes the Fed’s view of the labor market. I think the report is pretty close to what they expected,” Daniel Zhao, chief economist at Glassdoor, told Insider. .
The unemployment rate was still low in October, but fell to 3.7% from 3.5% in September. And both the overall activity rate and the prime-age activity rate, ie those aged 25 to 54, fell in October.
Nick Bunker, director of economic research at Indeed Hiring Lab, told Insider that the labor market is still robust but there are “some signs of some moderation,” adding that demand for workers appears to be easing. mitigate.
Bunker said he hoped it would show the economy “maybe making a soft landing,” which is what the Fed is looking for in its fight against inflation.
“But of course it’s possible that the landing will be a lot harder and a lot rougher than what we’re seeing right now,” Bunker said.
Don’t Expect a Dramatic Great Recession
If a recession did occur, it would be “much milder” than that seen during the pandemic and the Great Financial Crisis, David Kelly, chief global strategist at JPMorgan Asset Management, previously told Insider.
Kelly said these two recessions in particular “were not normal recessions” and were instead “mega recessions”.
But it’s still unclear how big or bad the coming recession might be, especially as the Fed awaits more economic indicators.
“Over the next year, the pace of hiring is expected to slow sharply, if as many expect the unemployment rate to rise above 4%,” Bankrate.com senior economics analyst Mark Hamrick told Reuters. follow-up to Friday’s jobs report. . “This is against the backdrop of a high probability of a recession emerging. But the severity or magnitude of such a contraction is difficult to predict.”
A so-called “growth recession” could be on the horizon. Workers would see unemployment rates rise as economic growth slows. If this sounds familiar, you may have already seen traces of it in the latest BLS release on the employment situation: the unemployment rate has increased slightly, although it still hovers around record highs.
“Reducing inflation will likely require a prolonged period of below-trend growth and some easing of labor market conditions,” Federal Reserve Chairman Jay Powell said at his November press conference. . “Restoring price stability is essential to prepare the ground for achieving maximum employment and long-term stable prices.”
As Insider previously reported, high Fed interest rates would cause companies to slow down their hiring plans and therefore lead to lower wage gains for workers. Some workers could be more affected than others in the next recession.
“Rising interest rates signal to workers that the government thinks we have too much money and should have less to spend,” AFL-CIO president Liz Shuler said in a statement. after the Fed’s last rate hike.
But while a growth recession won’t be nice for workers — interest rates will be high, wages might not rise as much, and some jobs might be lost — it won’t be anything like the Great Recession or the chaos of 2020.
Kelly said the problem is that “most young people in America, the only memory they have of a recession is those two recessions.”
But watch out for inflation
Inflation has peaked. Core inflation, which excludes volatile food and energy prices, hit its highest level in 40 years in September. Attention will be on the upcoming Consumer Price Index report released by the Bureau of Labor Statistics on November 10.
Looking ahead, all eyes are on the Fed’s December meeting when it announces its next round of interest rate hikes. Powell said Wednesday that rate hikes could slow “as early as the next meeting or the one after,” but he maintained that rates will still need to be raised as long as high levels of inflation persist.
“I don’t feel like we’ve tightened up too much or moved too fast,” he said. “I think it’s a good and successful program that we’ve come so far so fast. Keep in mind though that we still think there’s a need to increase rates going forward and we have some time left. ground to cover here, and we will cover it.”
If prices remain consistently high, Powell and the Fed could spring into action and hedge that ground more aggressively. It could mean an even more nasty recession.
“We are watching industry data closely for why the industry will be that canary in the coal mine for a broader recession,” Zhao said. “I think the obvious sectors to watch are the most rate sensitive,” such as construction, as the housing market cools.
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