Why is the labor market strong? And more job questions we can’t help but ask

This story is part Recession Assistance ServiceCNET’s coverage of how to make smart money moves in an uncertain economy.

What is happening

The job market appears to be holding up with an unemployment rate of 3.5%, but it’s unclear how long that will last in a slowing economy.

why is it important

As the Federal Reserve raises interest rates to temper inflation, it could push the US economy into a recession, prompting more businesses to close or lay off workers.

What this means for you

When you are aware of the factors that govern the labor market today, it can help you decide on your next career and your next financial move.

During a live television interview earlier this summer, the news anchor asked me bluntly if there could be a recession with such a low unemployment rate.

Needing to think, I said, “That’s a good question,” and veered off to talk about the state of inflation. (I’m such a pro.)

Many key indicators – including high inflation, falling consumer confidence, a volatile stock market, rising interest rates and a tight housing market for buyers and renters – suggest the economy is in edge of a recession. But the latest monthly jobs report is at odds with those figures, with the jobless rate falling slightly to 3.5% and businesses adding 528,000 jobs.

While there’s still no “official” call declaring a recession, if you ask most Americans, they’ll tell you they feel like the downturn is here.

The presenter’s question puzzled me for days. It shows how perplexing the US economy is right now, even for someone like me, who has been covering personal finance for over two decades.

I went looking for answers. Here’s what I learned about recession fears, interest rate hikes, layoffs, and other employment issues.

I read more about layoffs and hiring freezes. Is the unemployment rate really that low?

Layoff news is definitely trending. Yet job losses so far are concentrated in the tech, mortgage and housing sectors, which have slowed significantly due to either a drop in consumer spending or higher interest rates. of interest, or both.

Across the spectrum, the number of job vacancies is almost double the number of unemployed job seekers. In June, there were 10.7 million jobs available, with widespread employment growth. Layoffs have remained steady at between 1.3 and 1.4 million each month since the start of the year, which is below pre-pandemic levels.

That can change, of course, and there are signs that the labor market is cooling down a bit. It may take longer for the unemployment rate to catch up with the other lagging data points we are seeing right now.

“The labor market is one of the last indicators to show real stress,” said Liz Young, head of investment strategy for SoFi. Many large employers have made record profits during the pandemic, providing them with a bigger buffer than in previous economic cycles to absorb inflation or a slowdown in spending, Young pointed out. Additionally, companies will try other cost-cutting measures first, such as cutting marketing spend and freezing hiring. “They’re going to try to cut costs where they can before they have to lay off labor,” she said.

Why do interest rate hikes weigh on the labor market?

When the Federal Reserve raises interest rates, as it has repeatedly since the start of the year, borrowing becomes more expensive for everyone, including businesses that rely on credit financing to grow. When the cost of repaying debt rises, businesses may decide to cut operating costs, i.e. cut staff, to support the higher interest expense. In short, higher interest rates can lead to more financial hardship for business owners, which can lead to layoffs and higher unemployment rates.

I am a mom who took time off from work during the pandemic. How good are my job prospects now?

Some industries hire more than others but, in general, it is a market of job seekers. Leisure and hospitality, professional and business services, and health care created the most jobs in July.

If you’re a woman, it’s no surprise you’ve been out of the workforce during the pandemic. Employers need to understand the gaps in resumes dating back to 2020. More women lost their jobs that year than men: Between January and December 2020, 2.1 million women left the labor force, including almost half half were black and Latina, according to an analysis by The National Center for Women’s Rights.

And while some women are still struggling to return due to family constraints and work-life balance challenges, a promising new paper suggests that women have made a hell of a comeback. In her research for the Brookings Institution, economic studies fellow Lauren Bauer found that women between the ages of 25 and 44, most with college degrees, had returned to their pre-war levels of work participation. COVID.

“There’s something to be said for women who take the last two years on their chin and don’t accept that it was going to change the trajectory of their lives,” Bauer told me. Given how difficult their lives have been, they’ve been “much more proactive about staying on track for themselves and their children in ways we couldn’t have foreseen”.

Can I still ask for a raise in these uncertain times and be successful?

It depends on the financial health of your company, but given that there are so many job openings versus job seekers, the power might be tilted a bit more towards the workers.

“My estimate is that wages have some momentum and … workers still have good bargaining power,” says Jesse Rothstein, a professor of public policy and economics at the University of California, Berkeley.

About half of workers say they have received a pay rise in the past year, although this has not been sufficient in the face of inflation.

My advice: rather than worrying about the uncertainty of the economy, focus on the financial health of your business to assess whether it would be possible to make more money this year. If your company has implemented a hiring freeze or cut spending, this may be a precarious time to ask for a raise. On the other hand, if your employer has had a profitable 2022 so far (you can check the profit reports if it’s a public company or ask a colleague in finance or accounting information), this can be a good opportunity to ask for a raise.

Read more: Is it a good time to ask for a raise?

If I am fired now, how long will it take to find a new job?

The average length of time a person received unemployment insurance benefits in June was 22 weeks. In theory, this means that some job seekers were able to find a new job in about four and a half months. Yet this is an imperfect measure since some job seekers are cut off from unemployment benefits before they have landed a new job. Experts say many of the long-term unemployed are understated in official employment figures.

How can I prepare for a possible layoff?

Focus on the decisions that are within your control, including communicating with your employer now about how you can continue to help add more value, productivity, and possibly revenue during these difficult times. Take care of your personal finances by saving and paying off high-interest debt, reviewing your goals, and doing your best to create security in good times and bad.

Can there be a recession if the labor market is relatively healthy?

The National Bureau of Economic Research makes the official call for a recession, taking into account the health of the labor market in addition to other economic indicators, such as retail sales, industrial production and personal income growth . Historically, the most severe recessions have been marked by widespread layoffs and cyclical unemployment, which corresponds to a drop in the demand for hiring.

Still, deciding if, when, or how the recession will play out isn’t the best way to spend your time. “I think it’s mostly a semantic argument,” Rothstein said.

Alas, that’s what I wish I had said during the television appearance. I did better the second time around.

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