Weekly Economic Trends and Indicators

The Headline:

Employment in the Quad Cities Metropolitan Statistical Area increased by about 1% from February 2022 to February 2023 according to the establishment survey by the Bureau of Labor Statistics. The unemployment rate was 4.5% this January compared to 5.3% in January 2022 according to the household survey.

The Details:

Digging into the detailed job growth numbers we see a familiar story. Manufacturing jobs are up over the last year. About 1,300 manufacturing jobs were added from February to February, bringing total manufacturing employment (25,300) very close to the highest level in the last two decades (26,100 in August 2008).

The financial sector lost about 300 jobs locally in the last year, mostly attributable to rising interest rates causing a slowdown in mortgage and other types of lending. The most significant job losses in the last year were in professional and business services which lost about 1,300 jobs.

The Context:

The top economic news story of the week was the Federal Reserve’s 25 basis point (1/4 of one percent) increase in the target fed funds rate. This has important implications for local labor markets like ours. There was significant discussion and disagreement in the financial press over whether the Fed should continue raising the funds rate or pause at this meeting in light of the financial market turmoil caused by bank failures in recent weeks. Ultimately the Fed decided to go through with the rate hike to signal that they continue to regard inflation as the primary issue.

However, the stress to the financial system is real. Interest rate sensitive industries such as finance and tech are already shedding jobs. Weakness in professional and business services can also be attributed to higher rates. There is no question that labor demand is beginning to slow, which should start to manifest itself as lower inflation.

The open question right now is whether manufacturing can continue its strength as other sectors slow. Currently, demand continues to be strong. Yet higher interest rates will constrain growth at some point.

The financial markets predict a Fed reversal later in the year which would come as a welcome relief. However the Fed has made clear that they need to see inflation return to normal. Look for the Fed and the financial markets to continue to stare each other down all summer. The stakes are extremely high. Stopping the rate increases too soon risks allowing inflation to return with the economy in a precarious state. Pushing the rate hikes too far risks pushing the financial markets over the brink and causing an economy-wide credit crunch which would be felt all the way from Wall Street to Main Street.

Next week: Part one of a series on characteristics of the local Quad Cities economy