Job market mystery complicates Fed’s path

It is not a “stupid economy,” as political strategist James Carville once famously proclaimed. It’s a stupid economy.

Well, at least what it looks like.The bond market is flashing recession months of warning, Tech giants are cutting jobs at an alarming paceretail sales are fall off the floordespite falling gas prices, the housing market hasn’t been this depressed since the severity of the Covid pandemic.

Still, stocks continue their strong January rally, Atlanta Fed’s GDPNow Based on data from the University of Michigan, forecasting tools suggest the economy will maintain momentum with fourth-quarter growth of 3.5%, with key indicators of consumer sentiment up 8.2% from last month. inflation The pressure has eased.

of federal reserve,on the other hand, Ignoring all suggestions that the near-term rate hike path should be weakenedtells audiences, reporters and just about anyone ready to listen that inflation is still too high and interest rates will peak at the next level. much higher than current projections indicate.

what happened?

It may be the job market. unemployment Benefits fell by 15,000 last week to just 190,000, according to labor market data released Thursday, matching the lowest level since September and a distance closer to the March 2022 low of 166,000. I have.

“A fourth straight week of declining unemployment claims indicates the labor market still looks like it can weather the storm, but massive layoffs at blue-chip companies in recent weeks have put the economy at risk. It shows that the environment is weighing heavily on companies, especially mid-market companies in the technology sector,” said Mike Lowengart, head of model portfolio construction at Morgan Stanley Global Investment Office.

“While it appeared to be a question of when the rising interest rate environment would catch up with the labor market, debate remains as to when that resilience will be lost amidst Fed tightening.

The fact that fewer people are filing for unemployment benefits – while those employed during the holiday season should be looking for work – only adds to the mystery of the job market. I was.

“We’re seeing very strong job growth, very high wages, very strong labor market, but not much softening,” Fed Chairman Jerome Powell told reporters at a mid-December press conference. rice field. Washington after the central bank’s recent rate hike.

“Vacancy has risen significantly and supply and demand have become imbalanced in the labor market,” he said, adding that it “will likely take a long time” to contain the impact of higher wages on inflation.

Part of it is already happening. Bureau of Labor Statistics‘December employment report showed 223,000 new jobs solidly added, but wages growth is slower than expected 0.3% compared to the previous month, 4.6% compared to last year.

But those figures showed that Challenger Gray’s job cuts report for December layoffs jumped 129% from last year to 76,835, or about 10.45 million were opened according to November’s Job Openings and It is difficult to reconcile data from the Labor Turnover Survey (Jolts). The position of the US economy is at levels that could prove profitable over the coming months.

Or maybe not.

The Jolts data may overestimate job demand. Firms keep their lists up to date even if they do not intend to fill a particular position immediately. And because the tech layoffs, where most of the cuts occur, often involve highly skilled workers with more capacity. Find a job faster than those at the bottom end of the pay scale.

That said, headlines pointing to big jobs cut market leaders such as Microsoft (MSFTMore)- Get Free Report, Amazon (AMZN)- Get Free Report, goldman sachs (GS)- Get Free Report When meta platform (meta)- Get Free Report It can undermine business optimism while luring rebellious workers back into the workforce. unemployment insurance claim and headline unemployment.

Cleveland Fed President Loretta Mester told The Associated Press yesterday that she hopes rate hikes will have a greater impact on job creation than job losses.

It may be a needle that is harder to thread than the notorious needle.”soft landing“Federal Reserve policymakers want engineering.

Pantheon Macroeconomics’ Ian Shepherdson says that as companies delay hiring and workers begin to face a recession before finally laying off, unemployment claims lag behind both the Challenger Gray numbers and the broader economic downturn. claims to take

“By the time claims start to rise significantly, especially in today’s post-corona labor market, labor force participation rates are declining and the recession will be far enough into the recession,” he said.

That puts the Fed in an awkward position: once jobs settle and inflation slows, it won’t need to go ahead with rate hikes and can “land the plane” to avoid a recession.

But if unemployment escalates, it may be too late for the Fed to take its foot off gas, even if it has no other choice.