The Job Market Is Strong, But That Means a Recession Could Hurt More Next Year

  • The US added more wages than expected in November, marking another month of strong growth.
  • This expansion, along with higher wages, is good news for workers who are still switching jobs.
  • This red-hot labor market could mean more economic trouble later as the Federal Reserve kicks in.

Employment in America continues to grow. But a hot labor market could encourage the Fed to step up its fight against inflation and make the recession worse than expected next year.

The nation added 263,000 payrolls in November, according to the latest data from the Bureau of Labor Statistics. That’s more than the amount forecast by 200,000 wage economists surveyed by Bloomberg, and it represents a month of stronger hiring than expected.

Although total job creation in November was down from October’s revised gain of 284,000, growth was positive for most major industries in November.

November’s raise is good news for workers, who also got another raise that month. Wage growth remained strong in November, with average hourly earnings rising 5.1% year over year — above the 4.6% forecast by economists polled by Bloomberg. Incomes also rose 0.6% in November, far from a slowdown.

“Overall, the job market is still hot. Despite headlines about layoffs and hiring freezes, employers are still adding workers,” said Daniel Zhao, chief economist at Glassdoor. “Ultimately, this is a positive sign for people who are still trying to find the right job for them.”

“The big picture here is that the labor market still has a lot of resilience,” said Nick Bunker, director of economic research at Indeed Hiring Lab, in an interview with Insider.

Based on recent strong growth in earnings and employers adding jobs at a “really fast pace,” Bunker said “both jobs and wages have more momentum than previously thought.” Bunker also noted that workers still have bargaining power.

But while all this information is good news for workers, it could have far more dire consequences for the rest of the economy.

Bunker said the U.S. labor market is “slowing down a little” but “has more momentum than the Federal Reserve would like.” The Federal Reserve is trying to cool the hot labor market by raising interest rates: The central bank has already raised rates four times in a row by 0.75%, its most aggressive action yet. fight inflation.

The exorbitant raises have raised concerns among some Democratic lawmakers, who argue the tactic could drag the economy into recession and trigger a flood of job losses, but the labor market continues to be bright, according to recent jobs data.

Still, while Federal Reserve Chairman Jerome Powell hinted that interest rate hikes may slow in December, he noted in a speech on Wednesday that “the path ahead for inflation remains very uncertain” and that interest rates will likely need to remain high. for a while.

“It is likely that restoring price stability will require keeping policy at a restrictive level for some time,” Powell said. “History is a strong warning against premature easing. We will stay the course until the job is done.”

With a booming labor market, Bunker said, “the risk of an imminent recession is relatively low.”

However, Bunker said, there is still a risk that a persistently strong labor market could prompt the Federal Reserve to become more aggressive and raise rates aggressively — potentially pushing the economy into recession.

“In the short term,” he said, “the current labor market is good news.”

“Maybe for the second half of next year, depending on how the Federal Reserve interprets it, it might not be good news,” he said.

There may still be a recession brewing

An ever-increasing rate of interest rates could mean the dreaded term that has loomed over the economy over the past few months: recession.

Bank of America economists this week predicted the US would enter a deep recession in the first quarter of 2023, with growth slowing to 0.4%. Economists at Deutsche Bank also see a dire outlook for the stock market, with major US stock indexes expected to fall as much as 25% during a potential recession.

But most forecasts for a recession next year would be shallow and mild, Bank of America CEO Brian Moynihan recently suggested to CNN.

While the job market is still hot, it’s not growing at the same rate as last year. Jobs – while high – have been cooling slowly, which has particularly worried the Fed.

“I don’t think this report changes the Fed’s view of where the labor market is today,” Zhao said. “Yes, we saw wage growth pick up a bit, but I viewed wage growth as more of a speed bump on the Fed’s soft landing path.”

Amid recession concerns, both Powell and Treasury Secretary Janet Yellen think a soft easing, where the Fed fights inflation while avoiding a recession, is possible, but the path to that continues to narrow.

“If you look over the course of this year, no one expected us to raise rates this much, no one expected inflation to be this strong and persistent and this pervasive throughout the economy,” Powell said in a speech on Wednesday.

“And so we have to keep rates higher, or keep them higher for longer, which will narrow the path for a soft landing,” he said. “On the other hand, if we get good inflation data … if all this starts to turn around, we can do a lot.”

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