The pros and cons of a robust jobs market

California has managed to officially restore the 2.7 million jobs it lost during the 2020 recession. According to the California Employment Development Department (EDD),?California exceeded the number of jobs lost in spring 2020?by 1% with the addition of 56,700 new jobs in October 2022. According to a Bureau of Labor Statistics (BLS) report,?the US job market exceeded expectations?by adding 261,000 new jobs in October, amidst several interest rate hikes by the Federal Reserve.

The Fed is waiting for a sign of a softening labor market and receding wage growth to battle inflation. The Consumer Price Index (CPI) which is considered to be an indication of inflation rose by 7.7% year-over-year in October. As stated by the BLS, October 2022 had the lowest annual rate of inflation since January.

The Fed was targeting to reach an inflation rate of 2%, which fell a lot below the actual value. As a result, the Fed announced another hike to its benchmark interest rate by 0.75%, putting the federal funds rate between 3.75% and 4%. Despite the expectations of the Fed for lowered wage growth, wages have proven themselves to be resilient even in the middle of a possible recession. As stated by the Federal Reserve Bank of Atlanta, the year-over-year wage growth was at 6.4% in October 2022.

Even though wage growth is considered to be at a satisfactory level, it still falls below the annual rates of inflation. Incomes of the American workforce are having a challenging time keeping up with the rising prices of goods and services. The?buying potential of consumers is decreasing daily?as they have less to spend on the local economy. This has proven to be one of the biggest hits for the housing market.

Usually, a recession is indicated by several factors, such as a declining gross domestic product (GDP). In 2022,?the US economy?experienced two quarters where the GDP fell. Although this is considered to be an indication of recession, the National Bureau of Economic Research (NBER) has still not made an official announcement.

Markets Insider reports that the job market remaining strong was one reason for the NBER to not declare a recession in the US. However, an unwavering job market in the current economic situation may not be such a good thing. Some?pros of a robust job market?during these times are:

• It prevents the formal announcement of a recession
• Allows creating upwards pressure on the wages of employees
• Shifts power toward the workers instead of the employers

The New York Times says that there were 1.9 job openings for each unemployed person in the US in September. If we look at the cons of a strong job market amidst the current economic turbulence:

• A good wage growth rate contributes to maintaining a high inflation
• The Fed has more incentive to increase interest rates because of the strong job reports
• Consequently, the costs are increased for businesses

The wage growth and robust job market help people stay afloat with rising costs. However, it also adds fuel to the inflationary fire causing the Fed to have no option but to raise interest rates. California restored its pandemic job losses just in time for the economic recession to conquer the jobs and housing markets. The?undeclared recession is already upon US soil, although the NBER has yet to make a formal announcement. However, California will tell you that the housing market recession is already upon us. As we make our way to 2023, we can only expect more job losses. Although the pandemic job losses were recovered, there are still too many factors at play. It is expected that the housing market’s home sales volume and home prices will not be able to recover until past 2025.