When the Bureau of Labor Statistics releases its October jobs report on Friday, it will be the last major reading for the economy ahead of the midterm elections — and it will cap off a week of new data signaling that the labor market white-hot shows only signs of cooling.
The U.S. economy is expected to have added 200,000 jobs last month, up from 263,000 in September, but well above the pre-pandemic average. The unemployment rate is expected to rise slightly, from 3.5% to 3.6%, still near a half-century low.
But, good news is very often bad news, especially in this pandemic economy. (And it could be very bad news for Democrats.)
Respond to the latest JOLTS monthly survey of vacancies, quits and layoffs. Tuesday’s report surprised economists, who had predicted the number of job vacancies in the United States would fall amid moves by the Federal Reserve to slow business growth to keep inflation under control. But instead of falling to 10 million, it jumped to 10.7 million.
Private sector job growth and wages also rose last month, defying expectations, according to Wednesday’s ADP report.
All of this shows that the most aggressive monetary tightening in modern Fed history – while pushing mortgage rates above 7% for the first time in 20 years, slowing business growth and reducing household spending – barely made a dent in the labor market.
A strong job market in normal times is the kind of news that could be celebrated, but in 2022 it is cause for concern as it suggests the economy is overheating. On Wednesday, the Fed announced its fourth straight three-quarter point hike, the latest in a series of aggressive moves that would have been unthinkable just months ago.
There are currently 1.9 jobs for every person looking for work, a margin the Fed says is keeping inflation uncomfortably high. With many options, workers demand higher wages; and with few candidates, managers pay higher salaries, which strengthens the demand for goods and services (and therefore drives up prices).
The central bank is charged with a dual mandate: to maximize employment (check) and to ensure price stability (uncheck). Ideally, the Fed would want everyone to keep their jobs while dampening demand just enough to calm consumer prices, which have been hovering at 40-year highs and currently sit at 8.2%. Most economists say the likelihood of this so-called soft landing is now low – although Powell still considers it possible.
Analysts on all sides say the odds of a recession are high, even guaranteed. But the Fed is betting that the pain of a recession is better, in the long run, than the pain of runaway prices.
“Reducing inflation will likely require an extended period of below-trend growth and easing labor market conditions,” Powell said Wednesday. “Restoring this price stability is essential to set the stage for achieving stable employment and long-term stable prices.”
Unfortunately for Democrats trying to hold onto power next week, the pain of inflation appears to outweigh any positive feelings about job security. According to a new CNN poll, three-quarters of likely voters already feel the country is in a recession.