Weekly Economic Trends and Indicators
The Headline:
On Friday, the Bureau of Labor Statistics announced that payroll employment increased by 199,000 in the U.S. in November. The unemployment rate decreased 3.9 percent to 3.7 percent.
Earlier in the week, the BLS released the October Job Openings and Labor Turnover Survey (JOLTS). In October, job openings decreased by 617,000 to 8.7 million, which was a larger decrease than expected. This brought the ratio of openings to available workers down to 1.3 to 1.
The Details:
The payroll employment report was somewhat stronger than expected although there is a downward trend emerging. Workers returning from the strikes in October accounted for 30,000 manufacturing jobs. If we take out the effect of the strikes in October and November, the trend is clearly downward. The sectors gaining the most jobs were once again health care and government. Retail trade lost 38,000 jobs. Average hourly earnings rose by 0.4 percent for the month and 4.0 percent over the last 12 months, exceeding the current rate of inflation.
As we have noted previously, the JOLTS report is important to watch as it sometimes provides an early warning for labor market weakness. Job openings tend to decline first, before changes in hiring and layoffs. That seems to be the case now as well. The ratio of job openings to available workers, which had been closer to 2 to 1 during the pandemic recovery is now essentially back at pre-pandemic levels. This indicates that the tight labor market is, after all these months, finally starting to loosen. While the unemployment rate fell slightly, this is not always a reliable indicator of where the market is going. The unemployment rate tends to lag other indicators.
The Context:
The labor market data clearly shows a slowing economy, which is to be expected after the Federal Reserve’s aggressive series of interest rate increases. The question is whether the slowing economy will result in a “soft landing” or a recession. With 4th quarter GDP growth expected to still be positive, although lower than 3rd quarter growth, a recession call is certainly premature. However, the data on job openings is concerning as the trend has been downward for the last year. Continued loosening of the labor market is bound to result in fewer hires or more layoffs—both of which have been stable so far.
In order to squeeze the remaining inflation out of the economy, the Fed would like to keep rates high and allow the labor market to weaken, perhaps even the point of a small decline in job growth, before acting to lower interest rates. Some analysts noted that the strength of the employment report may have pushed back the rate cuts, but the market’s reaction was muted. Rate cut expectations are much closer to where they were a week ago than where they were a month ago. Many analysts still see the growing weakness and expect rate cuts early in 2024.
Next week: Quad Cities regional gross domestic product 2022
