04.07.2023 0

Peak employment holds steady—for now—as the unemployment rate holds at 3.5 percent and hiring slows down

By Robert Romano

The unemployment rate reported by the Bureau of Labor Statistics was down slightly to 3.5 percent, according to the latest data by the Bureau of Labor Statistics, as peak employment persists in the U.S. ahead of an expected recession.

By 2024, the Federal Reserve expects unemployment will be up to 4.6 percent. That implies about 2 million job losses from the current level.

One sign of trouble is that hiring slowed down significantly in the establishment survey of employer to 236,000 new jobs, down from 353,000 in January and 266,000 in February.

This is reflected in job openings, which are down 17.4 percent off their peak of more than 12 million in March 2022 all the way to 9.9 million.

Once jobs losses in the household survey begin rising, the unemployment rate will tend to rise as well. But that only seems to happen when job openings crater by more than 20 percent in the JOLT survey on an annual basis, as in the 2001 and 2008-2009 recessions. As of now, on an annual basis, job openings are down 14.4 percent, so there’s definitely still more room for that to fall.

Overall, by 2024, the Federal Reserve expects unemployment will be up to 4.6 percent. That implies about 2 million job losses from the current level.

The number of Americans on continued unemployment claims, not seasonally adjusted has steadily increased to 1.84 million the week of March 25, according to the Department of Labor. Continued unemployment claims are now up by 655,000 since Oct. 2022, when they were 1.19 million. But that’s actually down a little bit, from more than 785,000 just a month ago.

So, the worst is yet to come.

Then there’s inflation, which has been much stickier than many pundits had anticipated, still at 6 percent annualized. Now, with OPEC+ announcing further cuts in global oil production on April 2, oil prices have once again spiked upward — light sweet crude is up to over $80 a barrel again — but that could end up being offset by the weakening demand of the recession.

In the Covid recession, oil producers were unprepared for the sudden drop in demand due to the economic lockdowns and general production halts across all sectors of the global economy as prices went below zero. This time, oil producers appear to be getting ahead of that signal in a bid to keep prices elevated even amid the downturn, expecting much weaker demand, which would also be a recession signal.

Also a sign of weakening demand comes with home values, down 2.5 percent from their high of more than $275,000 in June 2022 to a current level of $268,000 in Feb. 2023, according to the Freddie Mac Home Price Index.

And looking in on interest rates, 30-year mortgages are still quite elevated at 6.28 percent, but are off their highs of more than 7 percent in Nov. 2022. Similarly, 10-year treasuries are back to 3.3 percent, off their recent high of 4.28 percent in Oct. 2022.

Other signs of course include the recent string of bank failure globally as higher interest rates have burnt a hole in banks’ pockets. While it remains to be seen if it will be another full blown financial crisis, this is yet another flashing red light on our consoles.

For the Federal Reserve’s part, it has taken its own interest rate for lending to banks up to 4.75 percent to 5 percent in a bid to tame the inflation after more than $6 trillion was printed, spent and borrowed for Covid, with at least one more rate hike expected this year. But that is still below the consumer inflation rate of 6 percent as the Fed appears reticent to pop the bubble. And yet, with oil picking up yet again, the question is how far annualized inflation will fall to meet up with the Fed’s interest rate posture.

If anything will keep unemployment low, it will be the continued retirement wave by Baby Boomers, the labor shortages of which could offset the worst of the recession. Aging demographics, for example in Japan, kept the unemployment rate to just 3.2 percent during the Covid recession.

Usually, as a recession washes over the U.S. economy, first hiring slows down and then the job losses begin mounting. The first condition is being met, but it still has more to go. All of the job losses, if they are coming, remain on the horizon.

Robert Romano is the Vice President of Public Policy at Americans for Limited Government Foundation.

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