The Federal Reserve is deliberately trying to cool off the economy — but when will this show up in the labor market? The Bureau of Labor Statistics said the U.S. economy added 390,000 jobs in May, with the unemployment rate stable at 3.6 percent, a drop-off from the 436,000 created in April. The number exceeded economists’ expectations of 330,000.
The jobs report follows another decline in laid-off workers claiming unemployment benefits, another sign that the job market remains hot. And there are still about two job openings for every unemployed worker, a figure the Federal Reserve has been trying to bring down.
The still-strong labor market is yet another confusing sign in the economy. At Grid, we’ve talked a lot about how some of the economic numbers seem off-the-charts good, but that inflation and gas prices are up; meanwhile, consumer sentiment is way down. That the economy can still regularly produce over 300,000 new jobs a month is a sign that, whatever issues there are, employment is not one of them — at least for now.
But still, increasing numbers of economists and market watchers are predicting a recession by the end of the year.
One thing is extraordinarily clear, as America is coming out of the pandemic economy: It’s going to be a bumpy ride.
Managing Editor Kay Steiger talked with Domestic Economics Reporter Matthew Zeitlin about the April jobs report, what a coming recession might look like and the limited control the Fed has over global economic problems.
Kay Steiger: Tell me about the April jobs report — the good, the bad and the ugly.
Matthew Zeitlin: This was a pretty normal jobs report. For the past year, the average number of new jobs on net has been 528,000, with a downshift in the spring to something more like 400,000 per month.
Wages also rose. They’re now up 5.2 percent on the year. This is mixed news — inflation is up over 8 percent in the past year, so for many workers, their real wages have declined. But it also means that there’s unlikely to be a situation where inflation and wages spiral up together, which will make the Federal Reserve’s job of taming inflation easier.
KS: Where do we see the biggest job growth still? Where is it the worst?
MZ: The retail and hospitality sector added 84,000 new jobs, which is both a massive employer and a sector that had been struggling to emerge from covid. Meanwhile, there was actually a fall of employment in retail, another sector badly hit by covid. One of the few sectors that has actually grown since February 2020, transportation and warehousing, saw another increase in employment, with 47,000 new jobs.
KS: To shift to recessionwatch: This week, Jamie Dimon warned of a possible economic “hurricane” on the horizon. That sounds bad! What does he mean by that?
MZ: Jamie Dimon is of a nautical cast of mind recently. Before the “hurricane,” he was warning of “storm clouds” in April, pointing to a number of factors that would at minimum bring about a lot of volatility and at worse would plunge the economy into a recession: inflation, interest rate hikes, the war in Ukraine.
He’s recently upgraded his forecast, so to speak, to include the risk of a “hurricane,” although admitting that it could either be a “minor one” or “Superstorm Sandy.” But, he cautioned, right now things appear OK, and today’s job numbers would be more evidence of that. The factors he cited are largely the same as they were when he made his “storm clouds” comments, he’s just gotten a little more pessimistic.
KS: He seemed really focused on the idea that lingering stimulus is keeping the economy afloat, and when that runs out, everything crashes. Do you agree with that assessment?
MZ: The personal savings rate soared to unprecedentedly high levels in 2020 and then jumped up again with subsequent rounds of stimulus. Even without the stimulus, savings would have likely jumped up: After all, most workers either received unemployment or stayed in their jobs and had little opportunity to spend money. The savings rate has since declined to below its pre-pandemic levels, and yet retailers like Costco are still reporting robust consumer spending. Ultimately, people spend what they earn, and right now, many Americans are taking home paychecks that they can spend on more goods.
KS: Still, forecasters keep saying a recession is coming! I’m honestly a little troubled by what could happen in another big recession. Democrats clearly feel they misfired with too much stimulus, and Republicans also say that’s what went wrong. Is the era of spending your way out of a recession over already? Or is it just about recalibrating?
MZ: If a recession hits late this year or early next year, it seems unlikely that there will be any fiscal stimulus to combat it. Several major Democratic economists (and conservatives are nearly united on this point) have already said that stimulus spending, especially the American Rescue Plan in early 2021, helped spur the inflation we’re experiencing now.
Furthermore, Republicans are likely to control at least one house of Congress, meaning that any Democratic spending plans would likely be dead on arrival. The real actor to watch out for is the Federal Reserve. One major fear is that the Fed could be chasing the economy around and still trying to cure inflation when the major risk is a recession.
KS: One thing I’ve noticed from your coverage is that while the U.S. economy used to seem like something that could be carefully managed by the Federal Reserve, it increasingly seems like huge impacts on the economy — the pandemic, the supply chain and the Russian invasion of Ukraine — are things they have no control over. Is this the end of the central banker as market wizard?
MZ: The Federal Reserve’s powers are most keenly felt in the financial markets. When interest rates go down, the prices of financial assets like stocks tend to go up. When they hike interest rates, stocks go down, and all of a sudden homes have gotten much less affordable thanks to higher mortgage rates. But right now, the Fed is trying to fight an inflation problem that has gotten substantially worse this year thanks to something far removed from the tinkering of central bankers — the Russian invasion of Ukraine and subsequent sanctions, embargoes and blockades, which have led to spiking oil, natural gas and food prices. That’s a problem that can only be solved between soldiers or diplomats, not central bankers.
Thanks to Lillian Barkley for copy editing this article.