Not As Strong As It Looks On The Surface

Talk of recession has drifted from the headlines for months now. Much economic news still points in that direction: high interest rates, for instance, sluggish consumer spending, too, at least on average, as well as a clear reluctance by business to spend on new facilities, equipment, and technologies. Even slack import figures suggest that individuals and businesses are spending less briskly than they might. To some perspectives, news of still powerful hiring trends has overwhelmed these important considerations and allowed economic optimists, most especially the White House, to dismiss just about everything else. These optimists ask: how can the economy be approaching recession when unemployment rates remain low, and hiring is strong? On the surface, the argument looks compelling, but now even the jobs market is giving off signs of weakness.

On the surface, recent news still offers the optimists plenty of material. In May, business reported hiring an additional 339,000 workers, well up from April’s gain of 294,000 and much above historic norms. The unemployment rate ticked up to 3.7 percent of the workforce last month from 3.4 percent in April but remains low by historic standards. President Joe Biden retains bragging rights.

Even in these upbeat figures it is worth noting that the pace of gain has fallen far short of how things looked only a few months ago. Recent employment increases, though still strong compared with averages of the more distant past, fall far short of the 463,000 monthly gain in new jobs averaged between January and July last year. Nor has the rate of unemployment improved substantially for the last 15 months. A look behind these headline figures gives even more reason to doubt a continuation of the good news on jobs.

Layoffs, for instance, have risen dramatically. Apple, Google, and Meta have made headlines with huge layoffs in the tens of thousands. More complete data compiled by the Labor Department show a broader increase to 1.6 million so far this year through April, the most recent month for which data are available. That amounts to 1.1 percent of the workforce. True, new hiring has absorbed most of these workers and more, but the pace of layoffs is nonetheless up an ominous 25% or so from this time last year, when the layoff rate amounted to a mere 0.9 percent of the workforce.

Darkening the jobs picture still more is the drop in openings. These in April rose a slight 3.7 percent from their March levels, but at a touch over 10 million open jobs nationwide, they showed 14% fewer than in April 2022, 16% fewer in the private economy. The decline in job openings is all but universal across all major employment categories. Only a few months ago at the end of 2022, there were twice as many job openings as there were unemployed in the country. Now the figure has dropped to 1.5 times, still high relative to the longer-term historic norm of 0.7, but nonetheless a big shift in just a few months.

Meanwhile new research in The Harvard Business Review argues that even this reduced figure might overstate the strength of the jobs market. There researchers contend that posted jobs say little about the urgency employers have to fill a position or the intensity with which they conduct their search. Levels of intensity, these researchers point out, need consideration because they vary more over the business cycle than do simple postings. The analysis plumbs data available from the Linkedin website to measure the ratio of what they call active job openings to the number of active job seekers. This improved ratio has risen much less dramatically than the conventional ratio of all postings to overall unemployed. More significantly, it has been in steep decline since early 2022. The Harvard study only has figures through late 2022, but by then this measure had already shown a 24 percent drop from earlier that year to a point where active job openings had already fallen below the number of active job seekers.

Taken together, the picture remains far from one of economic decline but nonetheless clearly one of ebbing strength. More significantly, perhaps, it warns against using the superficial jobs picture as reason to dismiss other signs or economic weakness. Especially with the Fed set to renew its pattern of raising interest rates, there is little reason to argue continuing strength, either from a financial perspective or from spending patterns – or, it should be clear, from the seemingly strong jobs picture.

Harvard Business ReviewThe U.S. Labor Market Is Less Tight Than It Appears