by tyler | Jun 5, 2023 | CNN, economy
Many CEOs, investors and economists had penciled in 2023 as the year when a recession would hit the American economy.
The thinking was that the US economy would grind to a halt because the Federal Reserve was effectively slamming the brakes to squash inflation. Businesses would lay off workers and inflation-weary Americans would slash spending.
But the case for a 2023 US recession is crumbling for a simple reason: America’s jobs market is way too strong.
Hiring unexpectedly accelerated again last month, with employers adding an impressive 339,000 jobs in May. Not only is that more than any major forecaster expected, but it’s more jobs than the US economy added in any single month in 2019, a very strong year for the jobs market.
“This economy is incredibly resilient, despite all the slings and arrows – despite the banking crisis, rate hikes, the debt ceiling,” Mark Zandi, chief economist at Moody’s Analytics, told CNN in a phone interview on Friday.
Zandi is growing more confident that 2023 won’t be the year when a downturn will begin.
“For this year, given these jobs numbers, it’s hard to see a recession. Increasingly, the odds of a recession this year are fading,” Zandi said. “A lot of economists who have called for a recession are now in the uncomfortable position of pushing back the start date.”
Although it’s possible, things would have to deteriorate very quickly in the economy, and the jobs market specifically, for a downturn to start this year.
“We’re running out of time for a 2023 recession,” Justin Wolfers, an economics professor at the University of Michigan, told CNN. “We’ve never had a recession when the labor market was running this hot. In fact, it would be absurd to use r-word at a time when we’re creating jobs at this rate.”
Not only did nonfarm payrolls soar by 339,000 jobs in May, but the government revised the prior two months of job growth significantly higher, too. Now the Bureau of Labor Statistics says payrolls increased by 217,000 jobs in March and 294,000 in April.
That’s miles away from the dark predictions issued not long ago. Last fall, Bank of America warned payrolls would begin shrinking in early 2023, translating to the loss of about 175,000 jobs a month during the first quarter followed by job losses through much of the year.
Some companies are indeed cutting jobs, especially in the tech and media industries.
The number of announced job cuts has quadrupled so far this year, according to Challenger, Gray & Christmas. But the economic indicators suggest many people who are laid off are quickly getting rehired.
Friday’s jobs report did offer some conflicting signals, especially in the household survey, which economists put less weight on because it tends to be noisier.
The household survey showed the unemployment rate, which had been tied for a 53-year low, jumped by 0.3 percentage points – the most since April 2020 – as employment fell sharply.
Yet Wolfers noted the three-month moving average for the unemployment remains extremely low at 3.5%. He described the jobs market as “really freaking good” and said the latest report further disputes the notion that the US economy is already in recession – a belief many Americans have. (In a May CNN poll, 76% of respondents described the economy as in poor shape).
“We are not in a recession. People have been telling us we’re in a recession for the last two years. They’ve been wrong each and every day,” Wolfers said. “Employment has grown gangbusters. The data is crystal clear on this. There is no recession.”
Of course, it’s possible that something happens to change that story in the coming months. And there is a significant risk of a recession in the medium-term as well as growing evidence that consumers are feeling real financial pain following two years of high inflation.
Dollar General slashed its forecast for the year and warned customers are being forced to “rely more on food banks, savings and credit cards.” Macy’s blamed slowing customer demand for cutting its own forecast. Federal Reserve researchers have found that auto loan delinquencies are rising, surpassing pre-Covid levels.
The other problem is the Fed’s war on inflation is hitting the economy with a lag. That means the full effect of the most aggressive interest rate hikes in four decades may not have been felt yet. This raises the risk the Fed overdoes it – or already has.
Zandi sees a one in three chance of a recession this year, but that rises to “uncomfortably high” odds of 50/50 in 2024.
Still, there is nothing about the latest jobs reports that signal an ongoing or imminent recession.
“As long as the economy continues to produce above 200,000 jobs per month this economy simply is not going to slip into recession,” Joe Brusuelas, chief economist at RSM, wrote in a report.
Morgan Stanley seems to agree, telling clients that the May jobs report “continues to point to a soft landing for the economy,” a Fed term for raising rates without triggering a recession.
Wolfers, the University of Michigan professor, said the risk of a hard landing “looks quite remote.”
If anything, the hot jobs market keeps alive a no-landing scenario: The economy grows so rapidly that the Fed has to slam the brakes even harder, risking a recession. But that would take time to play out, making it a problem for 2024.
by tyler | Jun 2, 2023 | CNN, economy
Fitch Ratings is keeping the United States on watch for a potential credit rating downgrade even after Congress passed a last-minute bill to avert a disastrous default.
In its first statement since the Senate passed the debt ceiling legislation Thursday night, Fitch Ratings on Friday said it is keeping the United States on rating watch negative and plans to make a decision on a potential downgrade by the end of September.
Although the resolution to the debt ceiling fight is a “positive,” Fitch expressed deep concern about the recurring brinksmanship and worsening polarization in Washington.
“Fitch believes that repeated political standoffs around the debt-limit and last-minute suspensions before the X-date (when the Treasury’s cash position and extraordinary measures are exhausted) lowers confidence in governance on fiscal and debt matters,” the ratings company said in a statement.
That reasoning is similar to the rationale behind the downgrade by S&P in 2011 – an unprecedented step that occurred after Congress agreed to raise the debt ceiling.
Fitch argued on Friday there has been a “steady deterioration in governance over the last 15 years.” The firm cited “increased political polarization and partisanship as witnessed by the contested 2020 election, repeated brinkmanship over the debt limit and failure to tackle fiscal challenges from growing mandatory spending has led to rising fiscal deficits and debt burden.”
In an email to CNN, Richard Francis, senior director of sovereign ratings at Fitch, said “governance is generally weaker” in the United States than other AAA-rated nations. But Francis said that is balanced by unique strengths, including the global role of the US dollar.
A credit rating downgrade would raise the government’s borrowing costs, forcing Washington to spend more money on interest and less on education, healthcare, defense and other priorities.
Fitch, one of the three major ratings companies, put the United States on watch for a potential downgrade last week before House Republicans and President Joe Biden reached a compromise to raise the debt ceiling. The Congressional Budget Office estimates the agreement will provide an estimated savings of $1.5 trillion over the next decade.
Fitch said it plans to resolve the negative watch in the third quarter. It will consider the “full implications of the most recent brinksmanship episode” as well as the outlook for the medium-term trajectory for the budget and debt.
Fitch said Washington’s ability to reach a deal on the debt ceiling “despite heated political partisanship” while “modestly” reducing fiscal deficits are “positive considerations.”
Beyond the political and fiscal developments, Fitch said America’s AAA credit rating is supported by “exceptional strengths,” including the size of the US economy, the dynamic business environment and the status of the US dollar as the world’s reserve currency.
“Some of these strengths could be eroded over time by governance shortcomings,” Fitch said.
Chris Krueger, managing director of TD Cowen’s Washington Research Group, noted in a report on Friday that the big three drivers of the federal deficit – Social Security, Medicare and Medicaid – were not touched by the debt ceiling deal and both defense spending and the national debt are set to continue to grow.
“Washington will continue to kick the can on the deficit…until the can kicks back,” Krueger wrote in the report.
The latest debt ceiling battle has prompted more calls for reform or even eliminating the debt ceiling.
Asked about debt ceiling reforms, Francis, the Fitch executive, said “certainly” reforms that make future standoffs less risky or less likely to happen would be a “positive” from a credit ratings perspective.
This isn’t the first time the credit ratings firm has sounded the alarm about the messy state of affairs in America.
James McCormack, Fitch’s global head of sovereign ratings, told CNN in March that even if a default is avoided this time, the frequent nature of these political showdowns could set the stage for a downgrade.
Lawmakers are “getting the right advice from the Fed and Treasury: You’re playing with live ammunition here. This is an extremely dangerous situation. There is a lot at stake,” McCormack said.
by tyler | Jun 2, 2023 | CNN, economy
The US labor market isn’t ready to slow down just yet.
Employers added 339,000 jobs in May, according to the monthly employment report from the Bureau of Labor Statistics released on Friday.
Last month’s job growth showed an acceleration from April’s job gains, which were revised upwardly to 294,000, and it’s a far hotter number than the 190,000 that economists were expecting.
The unemployment rate rose to 3.7% from 3.4%. Economists were projecting it to climb to 3.5%, according to Refinitiv.
The labor force participation rate held steady in May at 62.6%. The surge in the unemployment rate was driven in part by people who lost their jobs permanently and those who completed a temporary job, BLS data shows.
It appears that it’s taking longer for people to find work: The number of people unemployed for 15 to 26 weeks jumped by 179,000 to 858,000.
The job gains were broad-based, with some of the largest increases seen in professional and business services, government, health care and leisure and hospitality. Construction as well as transportation and warehousing also saw job growth.
“With 339,000 job openings, we’re still rewriting the rule book, and the US labor market continues to defy historical definitions,” Becky Frankiewicz, president and chief commercial officer of ManpowerGroup said in a statement. “The most resilient sectors include leisure and hospitality, as consumers are indulging in summer travel and eating out, creating hiring demand.”
The US economy hasn’t experienced a month of job losses since December 2020, when Covid infections were experiencing a spike.
Through the first five months of 2023, job growth has averaged 312,000 positions a month. That’s a pullback from last year, which averaged 399,000 per month (an average boosted by a blockbuster February when 904,000 jobs were added, and a significant slowdown from the 605,000 added per month during the booming recovery year of 2021. However, the May gains remain elevated from pre-pandemic times: There were 163,000 jobs added per month in 2019.
This story is developing and will be updated.
by tyler | Jun 1, 2023 | CNN, economy
Areas of the US economy have started to crack under the weight of persistently high inflation and a string of 10 consecutive rate hikes from the Federal Reserve.
But despite all that, the labor market has kept humming right along. And that’s largely expected to be the case, again, in Friday’s monthly jobs report from the Bureau of Labor Statistics.
Economists are forecasting a net gain of 190,000 jobs for May, according to Refinitiv. While that would mark a significant retreat from April’s surprisingly strong 253,000 jobs added, it would land slightly above the average monthly gains seen during the strong labor market in the years leading up to the pandemic.
Economists are also expecting the unemployment rate to tick back up to 3.5%. The US jobless rate has hovered at decade-lows for more than a year, with the current 3.4% rate matching a 53-year low hit in January.
Private sector employment increased by 278,000 jobs in May, according to ADP’s monthly National Employment Report, frequently seen as a proxy for the government’s official number. That’s significantly higher than estimates of 170,000 jobs added but slightly below the previous month’s revised total of 291,000.
Additional labor market data released Thursday showed that initial weekly jobless claims for the week ended May 27 totaled 232,000, almost no change from the previous week’s revised total of 230,000 applications.
“In the last few months, the job market has continued to defy gravity, adding a steady clip of jobs and holding unemployment at historically low levels despite a backdrop of rising interest rates, banking turmoil, tech layoffs and debt ceiling negotiations,” Daniel Zhao, lead economist at employment review and search site Glassdoor, wrote in a note this week. “After a healthy April jobs report, May is likely to repeat with an equally strong performance.”
Consumer spending and the labor market — two ares of strength in the economy — have, in a way, continued to feed on themselves.
Last week, a Commerce Department report showed that not only did the Fed’s preferred inflation gauge heat up in April but so did consumer spending. Economists largely attributed consumers’ resilience to the healthy labor market as well as ample dry powder stockpiled from home refinances and from the temporary pause in student loan payments.
In turn, that’s kept businesses busy.
“With demand for goods and services holding up, employers who have been cautious and have been very nervous about over-hiring are — when push comes to shove — having to keep hiring just to keep pace with business activity,” Julia Pollak, chief economist for online employment marketplace ZipRecruiter, told CNN. “They’re very worried about a recession later this year, but they need to keep hiring today to provide the pizzas that people are demanding and to prevent flights being canceled.”
She added: “Companies have also learned the hard way how costly staffing shortages can be.”
But labor shortages are becoming far less acute: This past Memorial Day weekend, 1% of flights were canceled, Pollak said, noting that cancellations were fivefold higher a year before.
“And while that’s a good news story — the end of shortages and disruptions during the pandemic is good for most consumers and good for businesses — it does come at some cost, which is a measurable decline in worker and job seeker leverage,” she said.
Labor turnover data released Wednesday showed that the US employment market remained tight in April.
Job openings bounced up to 10.1 million positions, bucking economists’ predictions for a fourth-consecutive monthly decline, according to the Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey report. The jump brought the ratio of vacancies to unemployed to almost 1.8, which is well above a range of 1.0 to 1.2 that is considered consistent with a balanced labor market, according to Michael Feroli, JPMorgan chief US economist.
Although the April JOLTS data showed that fewer people were voluntarily quitting their jobs, the amount of layoffs and discharges dropped during the month, suggesting that employers are continuing to hoard workers, noted economist Matthew Martin of Oxford Economics.
While monthly job gains haven’t tailed off as much as anticipated to this point, there is a notable slowdown that’s occurred from the blockbuster job gains of the past three years.
But whether the softening is a sign of a return to pre-pandemic form or perhaps of a downswing into a downturn, remains to be seen.
Some of the traditional recession indicators have been flashing red. Layoff announcements have quadrupled so far this year to 417,500, which — excluding 2020 — is the highest January to May total since 2009, according to a report from Challenger, Gray & Christmas released Thursday. Falling consumer confidence, monthly declines in the Conference Board’s Leading Economic Index, and drops in temporary help employment are also signaling that a downturn is just ahead. However, that long-predicted recession isn’t here just yet.
“We were in such an unusual place during the pandemic with some of those indicators at completely extraordinary heights that they have experienced extraordinary declines,” Pollak said. “But those declines were just a return to normal, not a contraction, and it’s not a recession.”
The government’s May jobs report is scheduled for Friday at 8:30 a.m. ET.
by tyler | Jun 1, 2023 | CNN, economy
Areas of the US economy have started to crack under the weight of persistently high inflation and a string of 10 consecutive rate hikes from the Federal Reserve.
But despite all that, the labor market has kept humming right along. And that’s largely expected to be the case, again, in Friday’s monthly jobs report from the Bureau of Labor Statistics.
Economists are forecasting a net gain of 190,000 jobs for May, according to Refinitiv. While that would mark a significant retreat from April’s surprisingly strong 253,000 jobs added, it would land slightly above the average monthly gains seen during the strong labor market in the years leading up to the pandemic.
Economists are also expecting the unemployment rate to tick back up to 3.5%. The US jobless rate has hovered at decade-lows for more than a year, with the current 3.4% rate matching a 53-year low hit in January.
Private sector employment increased by 278,000 jobs in May, according to ADP’s monthly National Employment Report, frequently seen as a proxy for the government’s official number. That’s significantly higher than estimates of 170,000 jobs added but slightly below the previous month’s revised total of 291,000.
Additional labor market data released Thursday showed that initial weekly jobless claims for the week ended May 27 totaled 232,000, almost no change from the previous week’s revised total of 230,000 applications.
“In the last few months, the job market has continued to defy gravity, adding a steady clip of jobs and holding unemployment at historically low levels despite a backdrop of rising interest rates, banking turmoil, tech layoffs and debt ceiling negotiations,” Daniel Zhao, lead economist at employment review and search site Glassdoor, wrote in a note this week. “After a healthy April jobs report, May is likely to repeat with an equally strong performance.”
Consumer spending and the labor market — two ares of strength in the economy — have, in a way, continued to feed on themselves.
Last week, a Commerce Department report showed that not only did the Fed’s preferred inflation gauge heat up in April but so did consumer spending. Economists largely attributed consumers’ resilience to the healthy labor market as well as ample dry powder stockpiled from home refinances and from the temporary pause in student loan payments.
In turn, that’s kept businesses busy.
“With demand for goods and services holding up, employers who have been cautious and have been very nervous about over-hiring are — when push comes to shove — having to keep hiring just to keep pace with business activity,” Julia Pollak, chief economist for online employment marketplace ZipRecruiter, told CNN. “They’re very worried about a recession later this year, but they need to keep hiring today to provide the pizzas that people are demanding and to prevent flights being canceled.”
She added: “Companies have also learned the hard way how costly staffing shortages can be.”
But labor shortages are becoming far less acute: This past Memorial Day weekend, 1% of flights were canceled, Pollak said, noting that cancellations were fivefold higher a year before.
“And while that’s a good news story — the end of shortages and disruptions during the pandemic is good for most consumers and good for businesses — it does come at some cost, which is a measurable decline in worker and job seeker leverage,” she said.
Labor turnover data released Wednesday showed that the US employment market remained tight in April.
Job openings bounced up to 10.1 million positions, bucking economists’ predictions for a fourth-consecutive monthly decline, according to the Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey report. The jump brought the ratio of vacancies to unemployed to almost 1.8, which is well above a range of 1.0 to 1.2 that is considered consistent with a balanced labor market, according to Michael Feroli, JPMorgan chief US economist.
Although the April JOLTS data showed that fewer people were voluntarily quitting their jobs, the amount of layoffs and discharges dropped during the month, suggesting that employers are continuing to hoard workers, noted economist Matthew Martin of Oxford Economics.
While monthly job gains haven’t tailed off as much as anticipated to this point, there is a notable slowdown that’s occurred from the blockbuster job gains of the past three years.
But whether the softening is a sign of a return to pre-pandemic form or perhaps of a downswing into a downturn, remains to be seen.
Some of the traditional recession indicators have been flashing red. Layoff announcements have quadrupled so far this year to 417,500, which — excluding 2020 — is the highest January to May total since 2009, according to a report from Challenger, Gray & Christmas released Thursday. Falling consumer confidence, monthly declines in the Conference Board’s Leading Economic Index, and drops in temporary help employment are also signaling that a downturn is just ahead. However, that long-predicted recession isn’t here just yet.
“We were in such an unusual place during the pandemic with some of those indicators at completely extraordinary heights that they have experienced extraordinary declines,” Pollak said. “But those declines were just a return to normal, not a contraction, and it’s not a recession.”
The government’s May jobs report is scheduled for Friday at 8:30 a.m. ET.
by tyler | May 31, 2023 | CNN, economy
The number of available jobs in the United States unexpectedly rose in April, bucking economists’ predictions after a three-month stretch of declines.
Job openings climbed to 10.1 million in April from an upwardly revised 9.745 million the month before, according to labor turnover data released Wednesday by the Bureau of Labor Statistics.
Economists were expecting 9.375 million job openings, according to consensus estimates on Refinitiv.
The Federal Reserve wants to see more slack in the labor market, since an imbalance between worker demand and supply could cause wages to rise and, ultimately, add upward pressure to inflation (which the central bank is trying to tame with a series of 10 consecutive interest rate hikes).
As openings rose in April, so did the ratio of available jobs to Americans looking for work. That ticked up to 1.77, BLS data shows.
“While the Fed is still talking like it is on the inflation-righting warpath, the resilience and strength of the job market have been remarkable,” Mark Hamrick, senior economic analyst at Bankrate, wrote in a note on Wednesday. “It remains to be seen whether the Fed is prepared to pause or skip a rate hike at a forthcoming meeting. For officials to decide, there’s still [Friday’s] jobs report and the Consumer Price Index due before the June Fed meeting and announcement.”
The latest Job Openings and Labor Turnover Survey showed that hiring activity edged up to 6.12 million workers from 6.07 million, layoffs dropped to 1.58 million from 1.85 million and quits slipped down to 3.79 million from 3.84 million.
The number of people voluntarily leaving their jobs declined for the second consecutive month, indicating further moderation in workers’ willingness to test the labor market, said Matthew Martin, US economist at Oxford Economics. But with the layoffs and discharges rate down 0.2 percentage points, that shows businesses are still trying to hoard the workers they have been able to hire, he wrote Wednesday.
Job openings started skyrocketing in 2021 as America’s economy sought to fully recover from the deep job losses suffered the year before, at the pandemic’s onset. The number of available jobs set records and bounced around those heights for much of the past two years.
It wasn’t until the first quarter of this year when they declined in a meaningful — and fairly methodical — fashion.
JOLTS’ surprise to the upside signals that the loosening of the labor market likely won’t occur dramatically but rather occur on a bumpy path, Martin wrote.
“While there are some concerns over the veracity of the JOLTS survey due to historically low response rates, the upshot remains that labor market strength remains robust,” he wrote. “That will leave the Fed on pause through the end of the year as officials look to ensure a cooling in jobs demand.”
