“We’ll get modest employment gains, not all that great, but enough to keep the economy moving forward,’’ said Brian Bethune, an economist at Boston College.
The economy’s resilience has come as a relief. Economists had expected that the Federal Reserve’s aggressive campaign to subdue inflation — it jacked up interest rates 11 times in 2022 and 2023 — would cause a recession. It didn't. The economy kept growing even in the face of ever-higher borrowing costs for consumers and businesses.
Last month, the Fed began cutting rates, in part to try to bolster the slowing job market. And, as Bethune noted, the once unlikely prospect of a "soft landing'' — in which high interest rates help vanquish inflation without triggering a recession — "is already secure.''
The economy is weighing heavily on voters as the Nov. 5 presidential election nears. Many Americans are unimpressed by the job market’s durability and are still frustrated by high prices, which remain on average 19% above where they were in February 2021. That was when inflation began surging as the economy rebounded with unexpected speed and strength from the pandemic recession, causing severe shortages of goods and labor.
Across the economy, most indicators look solid. The U.S. economy, the world’s largest, grew at a vigorous 3% annual pace from April through June, boosted by consumer spending and business investment. A forecasting tool from the Federal Reserve Bank of Atlanta points to slower but still healthy 2.5% annual growth in the just-ended July-September quarter.
On Thursday, the Institute for Supply Management, an association of purchasing managers, reported that America's services businesses grew for a third straight month in September and at an unexpectedly fast pace. The economy's service sector is closely watched because it represents more than 70% of U.S. jobs.
Last month, the nation's households increased their spending at retailers. And even with hiring having slowed, Americans are enjoying extraordinary job security. Layoffs are near a record low as a percentage of employment. The number of people filing for unemployment benefits also remains near historically low levels.
Companies seem generally reluctant to let workers go even though they are also hesitant to expand their payrolls. That unusual dynamic may stem from many employers having been caught flat-footed and short of staff after the economy began roaring back from the pandemic recession.
Employers added an average of just 116,000 jobs a month from June through August, including a dismal 89,000 in July. That marked the weakest three months of hiring since mid-2020. Hiring has plummeted from a record average of 604,000 a month in 2021 at the end of COVID recession and 377,000 in 2022.
Posted job openings, too, have declined steadily, to 8 million in August, after having peaked at 12.2 million in March 2022.
Workers have noticed the chillier environment for jobseekers. Far fewer feel confident enough to leave their jobs to seek a better position. The Labor Department reported this week that the number of Americans who are quitting their jobs fell to its lowest level since August 2020, when the economy was still reeling from COVID.
Job-hopping isn’t as lucrative as it had been, either. Last month, those who changed jobs were earning 6.6% more than they had earned a year earlier — a 1.9 percentage point premium over the 4.7% median pay gain of those who stayed put. The job-hopping premium used to be far higher — a peak of 8.8 percentage points in April 2022, according to Liv Wang, lead data scientist at ADP Research.
Two and a half years of high interest rates, it seems, have taken a toll on the job market. But relief might be coming.
The Fed last month slashed its benchmark interest rate by a hefty half-percentage point — its first and biggest rate cut since the 2020 recession. The central bank said it was encouraged by progress in its fight against inflation. Consumer prices were up 2.5% from a year earlier in August, barely above the Fed’s 2% inflation target and down dramatically from a year-over-year peak of 9.1% in June 2022.
Friday’s jobs report may bring more good news on inflation. Diane Swonk, chief economist at the tax and consulting firm KPMG, said she expects that average hourly wages rose 0.2% last month, down from a 0.4% increase in August. That would translate, she says, into a 3.7% gain from a year earlier. That's close to the 3.5% that many economists regard as consistent with the Fed’s inflation target. Such a drop would ease pressure on employers to pass along the cost of higher wages by raising their prices and thereby feeding inflation.
The Fed’s focus shifted to supporting the job market as hiring slowed this summer and unemployment rose, even while remaining relatively low. The central bank has signaled that it expects to cut its key rate twice more this year — likely by modest quarter-points — and four additional times in 2025.
The expectation of lower borrowing costs could encourage employers to pick up the pace of hiring.
“They see light at the end of the tunnel of this monetary tightening that’s been going on a couple of years,’’ Bethune said.
Credit: AP
Credit: AP