Not too long ago, talk of recession dominated the financial headlines. Much of the flow of economic information still points in that direction.
The dramatic interest rate increases orchestrated by the Federal Reserve count as one such consideration, as does sluggish consumer spending and a clear reluctance by businesses to spend on new facilities, equipment, and technologies. Even slack import figures suggest that individuals and companies are spending less briskly than they might.
Talk of recession has nonetheless faded because the jobs market has remained impressively robust, allowing the economic optimists, most especially the White House, to dismiss other signs of weakness in the economy. These optimists ask: How can the economy be approaching recession when unemployment rates remain low and hiring is strong? It has been a compelling argument, but now even the jobs market is showing signs of weakness.
On the surface, recent news on hiring and unemployment still offers the optimists material. The Labor Department’s May summary reported the additional hiring of 339,000, well up from April’s gain of 294,000 and much above historical norms. The unemployment rate ticked up to 3.7 percent of the workforce from 3.4 percent in April but remains low by historical standards. On these bases, President Joe Biden still has bragging rights.
Even so, those observers alert to changing conditions will note that new jobs creation has fallen far short of how things looked only a few months ago. Between January 2022 and July 2022, for example, business and government were adding an average of 463,000 new jobs per month. Although still strong compared to averages of the more distant past, recent figures show a remarkable comedown from their previous pace. Nor has the rate of unemployment improved substantially for the past 15 months. A look behind these headline figures gives reason to doubt a continuation of the good news on jobs.
Increased rates of layoffs certainly cloud the picture painted by the optimists. 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. Layoffs have averaged roughly 1.6 million per month 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 ominously—almost 25 percent from a year ago, when the layoff rate amounted to a mere 0.9 percent of the workforce.
Casting still darker shadows is the drop in job openings. They rose a slight 3.7 percent from their March levels in April. Still, at more than 10 million nationwide, they showed 14 percent fewer openings than in April 2022, 16 percent lower in the private economy. The decline 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.
The Harvard study only has figures through late 2022, but by then, this measure had already shown a 24 percent drop in the level of active searches from earlier that year to a point where these 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 growth momentum. More significantly, perhaps, it warns against using the superficial jobs picture as a reason to dismiss other signs of economic weakness. Especially with the Fed raising interest rates, there's 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.