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A banking crisis. Rising interest rates. The prospect of a catastrophic US government default on debt owed. Recession fears are high as the economy has weathered an onslaught of bad news lately. But the remarkable strength of the labor market, despite some moderation, is buoying the US economy amid huge uncertainty.
The Bureau of Labor Statistics is due to release a new report on Friday showing how the job market in April propelled the US economy through major turmoil.
Ahead of Friday’s report, the job market appeared strong, although slowing. The unemployment rate, which was 3.5 percent in March, has been hovering near 50-year lows for months. Jobless claims have slowly increased but still show no signs of an economic slowdown.
“You really don’t see any signs in the labor market that a recession is coming,” said Kathryn Edwards, labor economist at Rand Corporation. “All recession forecasts come from outside the labor market.”
The April jobs report is expected to show job growth for the 28th consecutive month, with estimates of around 133,000 jobs created. That would be the slowest growth since December 2020, reflecting recent economic headwinds.
Federal Reserve Chair Jerome H. Powell said Wednesday he remains optimistic the United States can narrowly avoid a recession thanks to continued resilience in the job market, which has held up amid more than a year of aggressive rate hikes.
“We’ve hiked interest rates by 5 percentage points in 14 months and the unemployment rate is 3.5 percent – pretty much where it is, actually lower than when we started,” Powell said. “It shouldn’t be possible for job openings to fall as much as they’ve fallen with our rising unemployment. Well, we saw that.”
Still, Powell said there are “no promises” and he isn’t ruling out the possibility of an economic slump. “It’s possible that we’re going to have what will hopefully be a mild recession,” Powell said. Federal Reserve officials will be closely monitoring economic indicators next month, including Friday’s jobs report, to see if Wednesday’s rate hike will be the last for a while.
The US economy is souring on a number of other fronts. The country’s economic growth slowed in the first quarter of 2023, growing at an annual rate of 1.1 percent as manufacturing output and retail sales fell. Spring’s banking crisis sent shockwaves through financial markets, making banks less willing to provide the credit needed to grow businesses and hire staff. That can slow down the economy further.
Despite its resilience, the labor market appears to be cooling. Employers have more influence over employees than they did a year ago. The pace of job creation has, with some exceptions, slowed significantly over the past two years, falling to its lowest level since December 2020 in March.
Large companies, including Lyft, Deloitte, Facebook’s parent company Meta and Whole Foods, have announced mass layoffs in recent weeks. Most of the layoffs have been concentrated in technology, financial services and housing, industries that have boomed during the pandemic.
Layoffs and layoffs spiked in March, returning to typical pre-pandemic levels, according to a Labor Department job vacancies report released on Tuesday. And a slight spike in jobless claims in recent weeks suggests some laid-off workers aren’t finding jobs as easily as they were a few months ago.
“If you’re in a situation where you’ve lost your job and you’re in an industry where there’s a lot of layoffs, you might be concerned about your ability to get back into a job,” Guy Berger said. Chief Economist at LinkedIn.
Meanwhile, total job vacancies fell to 9.6 million in March, the lowest number in almost two years, in a sign that Federal Reserve rate hikes are helping to dampen demand for labor. At the height of the hot, labor-scarce labor market, there were two jobs for every unemployed person. Now that rate has fallen to 1.6 jobs for every unemployed person.
“There’s steam coming from the labor market,” said Berger. “Workers are losing their bargaining power. The pendulum swings in the employer’s direction.”
Meanwhile, more Americans who left the workforce during the pandemic have returned to their jobs, alleviating labor shortages. According to a Washington Post analysis, the labor market has reclaimed 75 percent of the 4 million workers who left the workforce during the Covid-19 pandemic due to retirements, lack of child care and health concerns.
Chelsey Popanz, a mother of two young children in Cassville, Missouri, spent the pandemic moving in and out of the workforce due to the availability of affordable childcare. She’s had jobs as a zoo keeper, hotel bartender, casino bartender, and banquet captain. She also went months without a job when her fiancé was able to support her household with his $19.75 an hour paycheck as a welder.
Now Bogeyman is back as a 911 driver on the night shift, earning $16.80 an hour. Popanz said she was drawn back to work by a combination of finding a decent-paying job for the area, childcare thanks to the help of her extended family, and a need for more money to cover rising prices for gas, groceries and utilities.
“The only reason I came back is because I need the money,” said Popanz, 26. “Personally, I’d like to stay at home with my kids. But financially, we’re probably bringing in $5,000 to $6,000 a month and we have literally nothing to show for our bills. We can do with a few leftovers, but not enough to live life to the fullest.”
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