The data, however, does not mince words.
“There is a gradual realization that the idea of being able to reduce labor market rigidity by limiting the number of job openings has vanished,” said Gregory Daco, chief economist at EY-Parthenon. “We now have an implicit awareness that cooling the labor market will require a significant increase in the unemployment rate and will need a cooling of employment growth with potential job losses.”
“I wouldn’t be surprised that in an environment where companies are more cautious and apply more discretion to their hiring decisions, we could see potential net job losses by the end of the year,” he said.
“The average workweek in manufacturing has contracted in four of the past six months, which is a remarkable sign as companies reduce the hours before reducing their workforce,” Ozyildirim said in a statement. “Economic activity will continue to slow more broadly across the US economy and is likely to contract. One major factor in this slowdown has been the rapid tightening of monetary policy by the Federal Reserve to counter inflationary pressures.”
A myriad of factors at play
The Fed can’t just “push its heels three times, raise rates and bring down inflation,” Frick said.
“There’s a myriad of factors going on now, and it’s a mistake to think the Fed controls no more than a handful of those,” he said.
“I think the Fed is wrong if it thinks that rising rates, even to 4% or more, could intimidate the job market, because we are still over 4 million jobs below the pre-pandemic trend and employers jobs are still earning money and employers have yet to hire people, ”Frick said. “And it’s really, at this point, like telling the tide not to come in – expecting the job market to soften.”
One of the main reasons Fed Chairman Jerome Powell wants more flexibility in the labor market is concern that a tight employment situation will continue to drive up wages, which could then keep inflation high. As the unemployment rate rises, workers lose bargaining power for higher wages and families withdraw spending.
“Powell said the wage increases that contribute to inflation have not yet occurred, but he sees it will happen in the future,” Frick said. “This is all very theoretical at this point. And I understand that if you want to reduce demand, one way to do it is to increase unemployment … but I really think it’s an open question whether it’s a problem now or not.”
No “painless” path forward
To that end, American workers may have to bear the brunt of pain for a problem that is not caused by them.
“It’s not fair,” Frick said. “But no one ever said the economy wasn’t cruel at times.”
“This is a very slow level of growth and could lead to an increase in unemployment, but I think it’s something we think we should have,” Powell said. “We think we also need to have softer conditions in the labor market. We will never say that there are too many people working, but the real point is this: inflation, what we hear from people when we meet them is that they are really suffering from. inflation “.
“If we want to prepare, pave the way for another period of a very strong labor market, we need to raise inflation. I wish there was a painless way to do it. There isn’t,” he added. .
The next batch of key employment data, including job openings, layoffs and monthly earnings, will come in the first week of October, when the Bureau of Labor Statistics releases the survey on job openings and job turnover and the monthly work report for September.
Data on unemployment insurance claims released Thursday showed that the number of first-time applications for unemployment benefits was 213,000 for the week ending Sept. 17, according to the Department of Labor. The previous week’s total of 213,000 was revised down by 5,000. Weekly demands, which remain close to some of the lowest levels in recent months, underscore how employers hold tight to workers as the labor market remains full of opportunities for job seekers.