US labor market is slowing, but there are no ‘three alarm signals’ yet: economist

The US labor market is cooling worryingly, but not to an extent that warrants panic – at least not yet, according to economists.

Their concern is with the momentum of key labor market metrics such as unemployment, job growth and hiring.

Such barometers, which were historically strong just about a year ago, have gradually weakened as the Federal Reserve raised interest rates to cool the economy and reduce inflation.

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A recession could occur if the labor market continues to decline at its current pace, economists say.

“We’re still on this trajectory of not being a three-alarm fire at this point,” said Nick Bunker, Indeed’s North America workplace economic research director.

But if the decline does not level off soon, he believes there is no soft landing for the economy in prospect: “We are going to land, but it will land with a crash.”

Employers 142,000 jobs added in August, the Bureau of Labor Statistics reported a lower-than-expected figure on Friday.

The good news: That figure is an increase from the 89,000 jobs added in July. The unemployment rate also fell slightly, from 4.3% in July to 4.2%.

However, several figures point to “slowing momentum” across the labor market, said Ernie Tedeschi, director of economics at the Yale Budget Lab and former chief economist of the White House Council of Economic Advisers under the Biden administration.

Current levels of job growth and unemployment “would be fine if the U.S. economy were to hold up for months,” he said. “The problem is that other data doesn’t give us confidence that we’ll stay there.”

Average, for example employment growth was 116,000 in the last three months; the three-month average was 211,000 a year ago. The unemployment rate has also risen steadily, from 3.4% in April 2023.

So are employers hire This is the slowest pace since 2014, according to the separate Department of Labor facts released earlier this week.

Hiring has also not been broad-based: job growth in the private sector outside health and social security has been “unusually slow”, averaging roughly 39,000 in the past three months, down from 79,000 in the past year and 137,000 in the last three months. 2015 to 2019, according to Julia Pollak, chief economist at ZipRecruiter.

Employees are too fuses their jobs at the lowest level since 2018, while vacancies are at their lowest level since January 2021. The number of layoffs is a barometer of workers’ confidence in their ability to find a new job.

Job finding among the unemployed is around 2017 levels and “continues to decline,” Bunker says said.

“There is a very consistent view that the strong labor market momentum we saw in 2022 and 2023 has weakened significantly,” Tedeschi said.

Overall, the data points are “not necessarily worrying or at recession levels yet,” he added. “[But] they are softer. They could be a harbinger of a recession.”

However, there is some room for optimism, economists said.

Permanent layoffs — which have historically been “the soothsayer of recessions” — haven’t really changed, Tedeschi said.

Federal data for unemployment insurance claims and the number of layoffs for example, suggest that employers retain their employees.

The recent gradual rise in unemployment is largely not due to layoffs, economists said. There was a ‘good’ reason for this: a large increase in the labor supply. In other words, many more Americans are entering the labor market and looking for work; they are counted as unemployed until they find a job.

“As soon as we see layoffs, it’s game over and we’re in a recession,” Tedeschi said. “And that didn’t happen at all.”

That said, the job search has become more challenging for job seekers than in the recent past, Bunker said.

Federal Reserve officials are expected to start cutting interest rates at their upcoming meeting this month, which would take pressure off the economy.

Lower borrowing costs can encourage consumers to buy homes and cars, and companies, for example, to invest more and hire more workers.

That relief would likely not be immediate but would likely take many months for the economy to develop, economists said.

Overall, however, the current picture is “still consistent with an economy experiencing a soft landing rather than entering a recession,” Paul Ashworth, chief North America economist at Capital Economics, wrote in a note on Friday.