By Edouard Wemy
In any other time, the jobs news that came down on Dec. 2, 2022, would be reason for cheer.
The U.S. added 263,000 nonfarm jobs in November, leaving the unemployment rate at a low 3.7%. Moreover, wages are up – with average hourly pay jumping 5.1% compared with a year earlier.
So why am I not celebrating? Oh, yes: inflation.
The rosy employment figures come despite repeated efforts by the Federal Reserve to tame the job market and the wider economy in general in its fight against the worst inflation in decades. The Fed has now increased the base interest rate six times in 2022, going from a historic low of about zero to a range of 3.75% to 4% today. Another hike is expected on Dec. 13. Yet inflation remains stubbornly high, and currently sits at an annual rate of 7.7%.
The economic rationale behind hiking rates is that it increases the cost of doing business for companies. This in turn acts as brake on the economy, which should cool inflation.
But that doesn’t appear to be happening. A closer dive into November’s jobs report reveals why.
It shows that the labor force participation rate – how many working-age Americans have a job or are seeking one – is stuck at just over 62.1%. As the report notes, that figure is “little changed” in November and has shown “little net change since early this year.” In fact, it is down 1.3 percentage points from pre-COVID-19 pandemic levels.
This suggests that the heating up of the labor market is being driven by supply-side issues. That is, there aren’t enough people to fill the jobs being advertised.
Companies still want to hire – as the above-expected job gains indicate. But with fewer people actively looking for work in the U.S., companies are having to go the extra yard to be attractive to job seekers. And that means offering higher wages. And higher wages – they were up 5.1% in November from a year earlier – contribute to spiraling inflation.
This puts the Fed in a very difficult position. Simply put, there is not an awful lot it can do about supply-side issues in the labor market. The main monetary tool it has to affect jobs is rate hikes, which make it more costly to do business, which should have an impact on hiring. But that only affects the demand side – that is, employers and recruitment policies.
So where does this leave the possibility of further rate hikes? Viewing this as an economist, it suggests that the Fed might be eyeing a base rate jump of more than 75 basis points on Dec. 13, rather than a softening of its policies as Chair Jerome Powell had suggested as recently as Nov. 30. Yes, this still would not ease the labor supply problem that is encouraging wage growth, but it might serve to cool the wider economy nonetheless.
The problem is, this would increase the chances of also pushing the U.S. economy into a recession – and it could be a pretty nasty recession.
Wage growth still trails behind inflation, and for one reason or another people have been opting out of the labor market. The logical assumption to make is that to make up for both these factors, American families have been dipping into their savings.
Statistics back this up. The personal saving rate – that is, the chunk of income left after paying taxes and spending money – has fallen steeply, down to 2.3% in December from 9.3% before the pandemic. In fact, it is at its lowest rate since 2005.
So, yes, employment is robust. But the money being earned is eroded by soaring inflation. Meanwhile, the safety net of savings that families might need is getting smaller.
In short, people are not prepared for the recession that might be lurking around the corner.
And this is why I am gloomy.
Edouard Wemy is Assistant Professor of Economics at Clark University.
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Dennis C Rathsam says
Biden Lies!!!!! He still hasnt added enough jobs… He is still trying to get back the unemployement from the Biden handouts. Before the China flu… Trump created more jobs in the history of the USA….Biden,s still trying to catch up. Hows your 401 k? Hows the economy? All the democrates are 1/2 ass spin doctors, they surpressed Hunters lap top. No way Biden wins if the story came out before the ellection. America was lied to, now look at the mess we are living through.
YankeeExPat says
Mr. Rathsam you should be happy to know that today our former President has called for the U.S. Constitution to be terminated until he be put back in office as the rightful winner of the 2020 Presidential election.
consequently Mike Lindell will be shipping out 1 set of “My Pillow slippers ” to every MAGA supporter like yourself in our Gov. Ron DeSanctimonious state of Florida.
The ORIGINAL land of no turn signals says
The root of the answer is always the same sleepy Joe is in charge.
Pat says
Liberal policies fail 100% of the time. How can anyone be so blind. The fallout is always the same. Skyrocketing crime, inflation, enemies abroad become brazen, and our economy gets destroyed. Every single time liberal policies are enacted the outcome is always the same. When will people learn?
Normal Working Joe says
The only gloominess in the economy right now is from the economists and corporate executives. Not from me, the worker. Not from me, the consumer. My W-2s are up. My credit is up. My home value is up. What I see and hear as a normal Joe in America… Supply chain issues! Waaaa. Shipping is expensive now! Waaaa. People not wanting to work for pathetic non-living wages! Waaaa. Cry me a effing river. Pay a fair and commensurate rate. Corporate executive compensation is off the charts over the last couple of decades.
Corporate valuations went bonkers nuts, during a global pandemic no less. Up around 50%. White, male, corporate executives, along with their crony politicians, became multi-multi billionaires in the blink of an eye. For no actual, tangible reasons whatsoever. Funny money flowing everywhere. Now they’re all crying like spoon fed babies when others want fair and equal prosperity for their hard work and labor. Quick! Get a dick rocket up in the air and divert their attention away from our robbing them blind!
No. Recessions are part of the checks and balances in the global economies. BRING IT ON! We’re long long overdue from seeing these greedy privileged bastards jump from their high rises to the sewers below. Recession. Gimme a goddam break! That just means less stuff will be made, and subsequently less bought by poeple like me, and you know something? We NEED to stop buying so much useless crap.
Last note: INFLATION MY ASS! The corporate executives and their boards (again, mostly all white men) keep raising their prices so that they can RETAIN their own compensation levels – which are historically and grossly disproportionate. Show me a year when commulative executive compensation actually goes DOWN as a consequence of macro economic conditions. You can’t, because it doesn’t happen. The sacrifices are made in the middle and at the bottom. American workers are getting fed up. You see that in the employment numbers. We’ll work. But it better be fair. Pay us!