Right On Cue, The Labor Market Hits a Cool(er) Spot
Hello, hello ?? and welcome back to the Recruitonomics Newsletter! Happy Jobs Day to all who celebrate – the latest employment data was strong, but more subdued than recent months. Is the labor market finally cooling? We dig into that question below. Plus, some new data on the Canadian labor market and a miscalculation on the natural rate of unemployment that may have cost the U.S. economy thousands of jobs post-Great Recession. Read on for more!?
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This Week on Recruitonomics:?
The U.S. Jobs Market is Cooling on Cue
The U.S. labor market is cooling right on cue. Just as the majority of economists have decided there’s no way to achieve a soft landing, the labor market responded with a moderate month of job gains. The U.S. added 236,000 jobs in March, right at the consensus forecast. The unemployment rate ticked down to 3.5%. This report had some really good news for the macroeconomy: wage growth continues to slow and labor supply is expanding. Job gains are slowing, but that's a good thing for inflationary pressures. The combo of cooling demand and an influx of workers is depressurizing the labor market. That’s just what the Fed wants to see to justify ending its cycle of rate hikes.
Read the full article here.
What does this mean for recruiters??
Cooling like this is exactly what we need to see in order to achieve a soft landing. Hiring needs to slow slightly to give the Fed confidence that the rate hike cycle is making its mark and that inflation will follow. Unfortunately, a pace of hiring like we’ve seen lately is not conducive to price stability.
Let Canada Cook ????
March was a good month for the Canadian labor market. Last month’s labor report, released on Thursday, had four fantastic ingredients: low unemployment (5.0%), a high labor force participation rate for women (82.0%), continued strong wage gains (+5.3%), and a booming service industry (+75k jobs). Unemployment is just a hair above the record low of 4.9% hit last year – this is a tight market. Growing participation among women and young Canadians is hopefully helping some of the competition for labor. Wage gains are strong but cooling. Plus, the service sector continues to grow strongly, while goods-producing industries are experiencing a significant slowdown. Overall, the strength in the labor market should give pause to those who believe a recession is coming this year – the strength may hold it back.?
Read the full article here.
What does this mean for recruiters??
Thankfully, the last three labor market releases demonstrate real strength for the Canadian labor market. Strong wage gains, robust employment growth, and low unemployment all indicate a recipe for success for the remainder of 2023. This should quell fears of a recession this year, which is good news for recruiters.?
The Increase in the Natural Rate of Unemployment that Never Happened ????
A decade-long overestimation of the natural rate of unemployment may have cost the U.S. economy thousands of jobs post-2008. But what exactly is the natural rate of unemployment? It’s a key macroeconomic variable used by the Federal Reserve to set expectations for monetary policy and economic growth. Unlike the actual unemployment rate, it’s unobservable. Monetary policy more or less determines the aggregate pace of job growth in the economy during normal times, so the Fed's reading of the natural rate of unemployment matters for millions of job seekers. Unfortunately, during the years following the Great Recession, many policy makers believed the natural rate had increased. So, the Fed was content with the sluggish pace of recovery, believing that’s all the economy could offer at the time. This miscalculation cost hundreds of thousands of jobseekers potential positions – and is a reminder of how important the Federal Reserve’s decisions are.
Read the full article here.
What does this mean for recruiters?
Though I’m sure you feel removed from the decisions of the Fed, this mistake is a reminder of the real-life implications they have. Hopefully, if the central bank does its job well, the decisions will be benign and you won’t notice the implications.?
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Why Do Some Economists Believe A Recession Can Be Avoided? ??
Though the majority of economists believe that there will be a recession in 2023, there are still those holding out hope for a soft landing scenario. If a soft landing is the case, the Federal Reserve brings inflation down without tripping the economy into a recession. Last week, we outlined why the majority of economists forecast a recession. This week, we looked at the minority: what makes some economists think we can avoid a recession in 2023? First off, the economy has been pretty strong! GDP growth stuttered a bit last year but remains steady and positive. Consumer spending is strong. Manufacturing and retail sales are pretty good. Especially strong is the hot labor market, which is only recently showing signs of cooling from its red-hot temperature. Sinking an economy this hot is hard to do! Secondly, inflation expectations are well-anchored, showing the public believes in the Fed’s ability to cool inflation. With expectations improving and the labor market already starting to soften, the Fed is on track to see core services inflation moderate in the coming months.?
Read the full article here.
What does this mean for recruiters?
Though they are in a minority, economists who believe that the U.S. economy can avoid a recession have good arguments. If the labor market slows a bit in response to inflation and tightening, but stays relatively strong, this would be great news for recruiters – recruiting could finally return to something like normal.
Recruiting Resources:?
Curious about what a recession really is? In the latest Appcast webinar, “Not Too Hot, Not Too Cold: Searching for the Goldilocks Economy,” Labor Economist Andrew Flowers gives an easy-to-follow explanation about what is considered a recession. Knowing which signs to watch is more important than ever in this turbulent economy. Watch the video to learn more!
Recently on Recruitonomics:
A majority of economists forecast a recession in the U.S. in 2023. Why? Well, inflation is a great place to start. A recession is only possible because inflation is too high and the Fed is consciously slowing the economy. Inflation is stubborn, in part, because of rip-roaringly strong spending, which is simultaneously fueled by and fueling a strong labor market. The Fed wants to cool this hot economy, hence the interest rate hikes. According to those within the recession camp, a recession is likely this year because the Fed cannot slow the run-away train of an overheating economy. They believe the Fed will lose the long-term battle with inflation, and will push the U.S. economy into recessionary territory.?
Read the full article here.
The short-run outlook for the U.K. economy is now looking brighter than last year. Business and consumer sentiment improved in the beginning of 2023 and so did the Bank of England (BoE)’s forecast for the economy. Instead of a shallow recession, the BoE now expects GDP to remain flat in the first half of 2023. However, there is a massive disagreement between U.K. policy makers. On the one hand, you have the BoE in control of monetary policy. And on the other hand, you have the Office for Budget Responsibility (OBR), the independent economic forecasters of the U.K. Treasury, representing fiscal policy. The monetary and fiscal policy makers do not see eye-to-eye about the U.K. economy’s long-run economic growth potential, with the BoE being much more pessimistic. Where do these discrepancies come from? They reflect diverging assumptions about employment, worker productivity, and business investment.
Read the full article here.
What Recruitonomics is Reading:
There has been a troublesome gap between labor supply and demand since 2021 – in part caused by a lagging labor force participation rate following the onset of the COVID-19 pandemic. While the prime-aged labor force participation rate has recovered, total LFPR has yet to return to its February 2020 levels. What is causing this gap? Economists at the New York Fed consider three possible reasons: the aging population, the retirement rate, and an increase in the number of people with disabilities.
As the baby boomer generation ages and reaches the retirement threshold, retirements have increased dramatically (up 2% from 2018-19 to 2022!), thinning out the labor force. Additionally, when you split up retirements by age groups above 60, you see that older workers are simply retiring more at every age group compared to before the pandemic. Finally, the number of workers with disabilities has certainly increased in this long-COVID environment, but what about the share of people with disabilities not in the labor force? This has actually slightly declined, so it doesn’t have much effect on participation at all! But the demographic trends and retirement have a powerful effect on the labor force participation rate, as StepStone has researched.?
More Data & Insights:
Thank you for reading! Stay tuned for next week's Recruitonomics Newsletter and check out Recruitonomics.com for more data-driven insights.