However, data does not mince words.
“It’s becoming clear that the rose-colored glasses of being able to ease labor market tension simply by cutting job openings are gone,” said Gregory Daco, chief economist at EY-Parthenon. “We now have an implicit insight that for the labor market to cool it will require a significant rise in the unemployment rate and a slowdown in job growth, with potential job losses.”
Those numbers could go down relatively quickly, Daco said.
“I wouldn’t be surprised that in an environment where companies are more cautious and applying more discretion in their hiring decisions, we could see potential net job losses by the end of the year,” he said.
“The average work week in manufacturing has declined in four of the last six months — a notable sign as companies reduce hours before reducing their workforce,” Ozyildirim said in a statement. “Economic activity will continue to slow and likely contract across the US economy. A key driver of this slowdown has been the Federal Reserve’s rapid tightening of monetary policy to counter inflationary pressures.”
Countless factors play a role
The Fed can’t just “triple click the heels, raise interest rates and lower inflation,” Frick said.
“There’s a multitude of factors now, and it’s a mistake to think the Fed controls more than a handful of them,” he said.
“I think the Fed is wrong in believing that raising rates, even to 4% or more, will intimidate the job market because we are still more than 4 million jobs below pre-pandemic trend and employers “There’s still money to be made, and employers still have to hire people,” Frick said. “And at this point, it’s really like telling the tide not to come — expecting the job market to go down.”
A key reason Fed Chair Jerome Powell wants more slack in the job market is concern that a tight employment situation will push wages further higher, which could then keep inflation high. When the unemployment rate rises, workers lose their bargaining power for higher wages and households back off on spending.
“Powell has said that wage increases that add to inflation haven’t happened yet, but he sees them happening in the future,” Frick said. “It’s all very theoretical at this point. And I understand that if you want to lower demand, you can increase unemployment…but I really think it’s an open question whether it’s a problem now or not.”
No ‘painless’ way forward
To that end, American workers may have to bear the brunt of a problem they didn’t create.
“That’s unfair,” said Frick. “But no one ever said economics wasn’t cruel at times.”
“It’s very slow growth and it could lead to a spike in unemployment, but I think that’s something that we think we need to have,” Powell said. “We think we also need to have softer labor market conditions. We’re never going to say that too many people are working, but the real point is this: inflation, what we hear from people when we meet them is that they’re really suffering from inflation.”
“If we are to line up and pave the way for another phase of a very strong labor market, we need to get inflation behind us. I wish there was a painless way to do this. There isn’t one,” he added.
The next set of key employment data, including job openings, layoffs and monthly job gains, will appear in the first week of October when the Bureau of Labor Statistics releases the September Job Openings and Labor Turnover Survey and Monthly Jobs Report.
Data on jobless claims released on Thursday showed that the number of initial jobless claims for the week ended September 17 was 213,000, according to the Labor Department. Last week’s total of 213k has been revised down by 5k. The weekly claims, which remain near some of the lowest levels in months, underscore how employers are holding tight to workers as the job market remains brimming with opportunities for job seekers.