Economists seem divided on the health of the U.S.
economy.
I would say this is the most confusing moment in
U.S. economic history.
I'm not seeing any kind of recession signs.
There is a recession in our future.
A top concern for Americans: Will they lose
their job?
We have twice the number of job openings as we have
workers searching for work.
We've never seen that.
So it's hard to see how we could be in a recession
with that level of job growth and income growth.
At the same time, big companies are already
announcing layoffs, including Best Buy, Ford
Motor, HBO Max, Peloton, Shopify, Walmart and
Wayfair. Now, a survey shows 50% of firms expect
to reduce their labor force in the next 6 to 12
months.
There are going to be more layoffs, so you need to be
wary of that.
Is the U.S. economy on the brink of a major recession
or are we already in one?
And are massive layoffs on the horizon?
The discrepancy over whether there's a
recession depends on if you focus on gross
domestic product data or what's happening in the
labor market.
A recession is about what we produce as a country,
how much income we have as a country, how many
jobs are out there.
This is big picture, and a recession means we're
going backwards.
A recession is defined as a broad-based, persistent
decline in economic activity.
And the arbiter of recessions is the Business
Cycle Dating Committee, which is a group of
academic economists that are at the National Bureau
of Economic Research, and they look at a plethora of
economic data.
GDP is one of the indicators, and that by
itself would be signaling, yes, a
recession has occurred in the first half of this
year. Look, we did not suffer a recession in the
first half of this year. Yeah, GDP declined two
quarters in a row. But that's a rule of thumb.
That's just the rule of thumb.
The GDP measure is kind of
like a scan in medicine.
It can tell you you've got a lump, but not what
that lump is. And you actually need to look at
far more detailed information to know
whether it's benign or whether it's actually
something serious.
The U.S. is only in a recession if it is
officially declared by the National Bureau of
Economic Research, and they have not done that
yet.
There has been a lot of talk recently.
"We're in a recession. We have two quarters of
declining GDP." That often happens with a
recession. There's a reason people talk about
that. But we have job growth that is incredibly
strong. We have an unemployment rate that is
a 50 year low.
In some ways, I'm like, I'll take it.
Very, very strong. Still in the labor market.
We're still printing new payroll job numbers at a
high level.
The single most important thing is, well, do I have
a job? Do my kids have a job?
Does my wife have a job?
Those are the kinds of things that people I think
look at.
Fed officials closely monitor job openings to
check on the health of hiring. In July, there
were over 11 million job openings.
That shows there's a shortage of workers for
available positions.
If it does turn out that we are in a world of a
persistent labor shortage over time, that will be a
challenging world for companies.
So it's a very interesting time in the economy when
you have restaurants and hotels and airlines still
starved for talent and trying to hire as quickly
as possible.
In July 2022, the unemployment rate was at
3.5%, a low that matched pre-pandemic levels.
We've been rescuing the job market from the
pandemic downturn and stabilizing the economy
after its unprecedented disruptions.
We've brought the United States back to full
employment in record time.
Then unemployment ticked up 0.2 percentage point in
August. That means thousands of people are
entering the workforce.
We did see a welcome increase in labor force
participation. Nonetheless, it's still a
full percentage point below where it was before
the crisis. And I think it's important as a
society that we have measures in place to
support a strong labor market and high labor
force participation. And that goes beyond what we
can accomplish with monetary policy.
And then you have other parts of the economy, like
tech and e-commerce and real estate, that
experienced explosive growth during the pandemic
and that are perhaps kind of tilting back to normal
now. That perhaps expanded too quickly, that
grew too fast.
And that now needs to rein in their belts a
little bit. That said, we're seeing all of these
headlines about recessions and about
layoffs.
The layoff rate has stayed under 1% of the workforce.
That's 1.4 million people as of July.
That's close to historic lows.
And that's because in restaurants and in
hospitals, it's kind of almost impossible to get
fired right now. There are such shortages of
talent that companies are kind of prepared to give
workers a second chance.
The Federal Reserve is raising interest rates at
this point in an effort to slow down the job
market, and that's going to mean more layoffs.
Layoffs are already hitting the tech sector,
like Klarna, Snap, even Best Buy and Walmart.
Now companies like Google are hinting at potential
cuts as more and more CEOs expect a recession.
But economists say the top four most
recession-proof industries are health
care, government, education, and computer
and information tech.
At the same time, the labor market is facing off
against the great resignation.
They're not quitting to walk away from work.
They're quitting to get a better job.
In July, 6.4 million people got new jobs, while
another 4.2 million people quit jobs.
So there's very rapid turnover.
Very rapid churn.
That means there's also a lot more hiring taking
place. And yes, it is a little bit of a cycle, but
it's not just circular.
People are trading up.
People are getting big wage increases from
switching jobs.
Job switchers are seeing much bigger wage increases
than job stayers.
For the first time in a long time, workers are
getting a bit of the upper hand, particularly
lower wage workers.
That's actually where we've seen the big wage
increases.
You know, the broad set of data suggests that we're
moving forward. The economy is still
expanding. It's not in recession, but it's a
struggle.
The most immediate challenge, of course, is
to return to an environment of stable
prices without sacrificing the economic
gains of the past two years.
For now, it doesn't look as though we are in a
recession, yet.
Many people are betting that we will be in a
recession by the end of the year however.
It's hard to say what indicators are best to
watch right now.
At the top of the list is consumer confidence and
the change in.
And the best indicator of future recessions, if
businesses and consumers lose faith that that's
going to happen, they'll pull back and we go into
an economic downturn, recession. So sentiment
confidence, particularly the Conference Board
survey of consumer confidence, is a very,
very good leading indicator.
The longer that inflation remains well above target,
the greater the concern that the public will start
to just naturally incorporate higher
inflation into its economic decision making.
And our job is to make sure that doesn't happen.
So I think it's very important to look at the
number of job openings.
I think the question is how steeply they will
fall, how sharply they will fall.
They go back to sort of 7 million, the level before
the pandemic.
If the unemployment rate rises more than four or
five tenths of a percentage point in a
three month period, in all likelihood, you're
going in because that means that businesses are
laying off workers and you get into that, that's
going to cause sentiment to collapse and you go
into recession.
ZipRecruiter's Job Seeker Confidence Survey in
August showed one in four employed job seekers feel
less secure about their current job than they did
six months ago.
That's an all time low.
Companies trying to slow down their hiring a little
bit. There are always people hiring, even in a
recession. There are companies that need to get
things done.
A recent PWC survey found 52% of companies now have
hiring freezes, while 44% are rescinding job offers
and 46% are getting rid of new hire signing
bonuses. And roughly 50% of the companies surveyed
are reducing their overall headcount.
I expect layoffs to rise.
The Reserve is raising interest rates at this
point in an effort to slow down the job market,
and that's going to mean more layoffs.
So we will see layoffs pick up going forward.