Is Jerome Powell as wrong on the job market as he is on inflation?

Now we know. The economy contracted for two consecutive quarters, falling by a modest 0.9 percent in the second three months of the year after a 1.6 percent decline in the first quarter.

That doesn’t mean, the White House argues, in a ridiculous effort to spread the bad news, that we’re in a recession. No sire; it just means, well, we’ve had two quarters on the downside (which historically has always meant a recession).

That the White House adopts this approach of burying one’s head in the sand is understandable. President Biden took over the Oval Office in the midst of a lively and sweeping recovery; harmful policies like its war on fossil fuels and federal overspending have now spurred inflation and ignited our growth.

But it was Federal Reserve Chairman Jerome Powell’s comments the day before the GDP release that caught our attention and raised alarm bells. Powell, answering reporters’ questions in the wake of a 75 basis point rate hike, also hesitated when asked if the US was in a recession.

No, he said: “I don’t think the United States is currently in a recession. And the reason is that there are too many areas of the economy that are functioning too well. I would point out in particular the labor market ”.

Which makes one think if Powell is reading the news.

Yes, the job market has been strong, but there are all indications that we are at a turning point and that the next direction is down.

Over the past three months, there has been a slow but steady increase in the number of companies that have slowed or stopped hiring. There were also some who announced that they would let the workers go. Remember: layoffs were virtually non-existent just six months ago. Employers were struggling to find workers; few have dared to decrease their ranks.

This has changed, albeit slowly. There is no doubt that it is still difficult to find qualified employees. Over the past year, as millions of people have retired and millions more have refused to return to work, in part because they were supported by overly generous federal and state benefits, managers around the world have rushed to add staff.

Today the panic has passed. Recent polls by groups such as the National Federation of Independent Businesses show that inflation, not hiring squeezing, is the main problem for small businesses. In a recent survey, nearly a third of small employers said they were reducing employee-related costs such as wages, hours worked, or … the number of employees to compensate for the price increase.

Softening demand in various industries has led companies to suspend hiring and lay off. Ecommerce companies like car dealerships Carvana and Vroom, which have seen demand increase during the pandemic and since the accelerator has waned, have laid people off.

Compass, an online real estate powerhouse, has reduced the number of its employees by about 10%, adjusting to an environment of higher mortgage rates. GoPuff, a grocery delivery app, is also reducing its staffing. Other companies that have benefited from a closed environment, such as Pelaton and Netflix, have also fired people.

Big Tech is also responding to a possible drop in demand, with Twitter, Apple and Alphabet all announcing a slowdown in hiring. Meta, reacting just recently to a drop in revenue, said it would reduce its workforce; Amazon said it was understaffed in some warehouses, and Shopify laid off 10% of its workforce.

It’s not just tech companies that let workers go. Ford Motor Company announced that it plans to lay off up to 8,000 salaried employees, General Motors, which had prepared to meet 1 million job applications while preparing to produce electric vehicles, has now instituted a hiring freeze.

In biotech, the news is similar. Invitae has announced it will be letting go of 1,000 employees and CytomX Therapeutics, a San Francisco-based cancer treatment company, is cutting its staff by 40%.

On Wall Street, what was a hiring frenzy just a few months ago has definitely cooled down. Goldman Sachs, where revenues fell 23% in the last quarter, said it will slow hiring and roll back annual performance reviews. Black Rock said it would cut hiring and Morgan Stanley said layoffs are on the table if business conditions worsen.

So where does Powell see that super tight job market? In the rearview mirror. Earnings from work have been robust, no doubt, but are now decreasing. In June, the United States added a whopping 372,000 jobs. But it was down from 384,000 in May, 714,000 in February and 504,000 in January.

Meanwhile, the four-week moving average of jobless claims has been trending upward. Last week, the statements surprised economists by leaping to the highest level since last November. The constant requests are also increasing.

The Federal Reserve System, with its $ 5 billion budget and tens of thousands of employees, is meant to be at the forefront, not behind. This Fed has been extraordinarily late with the party in anticipating and diagnosing inflationary pressures, and even slower in responding to the price surge. There have been many red flags that the Fed has missed, including the fact that consumers were full of government generosity and buoyed by rising stock and house prices.

For sure, the pandemic has thrown all economic calculations and expectations off course. And it is true that it is unusual for GDP growth to turn negative when hires are still positive. Lead economist Ed Hyman, who did not predict a recession, recognized the strange mix of data, concluding: “We have never seen anything like it.”

But now the Fed needs to tune in to what’s happening in the real world, and specifically how its efforts to crush inflation could weaken not only demand but also the labor market.

It is good news that Powell indicated flexibility for the future and, as usual, indicated that the Fed would be data-driven.

Otherwise, it could lead this country’s economy straight into a ditch. The recent record is not encouraging.

Liz Peek is a former partner of Wertheim & Company, a major Wall Street firm. Follow her on Twitter @lizpeek.

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