CHAPEL HILL – With the U.S. economy adding 263,000 jobs in September 2022, more than expected, how are we to make sense of whether the economy is braking or is breaking?
That was the topic under discussion during a virtual media briefing on Friday morning led by Dr. Gerald Cohen, chief economist at the Kenan Institute.
“These days, every employment report is quite strong or is quite notable,” said Cohen. “Headlines suggest very few cracks in the economy.”
But the details show a mixed economy, Cohen noted. There are some cracks in the job market that can be seen, potentially, including the Triangle’s job market.
“The details were much more mixed,” said Cohen. “What we saw was actually a big increase in leisure and hospitality, up 83,000, but declines in retail employment, in financial employment, so interest rates are hitting the financial sector.”
Also, there was a slowdown in transportation and warehousing. And that could be indicative of softening demand for goods purchased online impacting job growth in this sector as we approach the winter holidays. Still, Amazon announced this week that it planned to hire 150,000 workers, with 1,000 new roles based in the Triangle.
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What will the Fed do now?
Cohen said that the Federal Reserve might interpret the jobs report data as indicative that its goal to slow the economy by raising interest rates was working.
“If I’m reading the data correctly, I would say they would think that this is a net positive going forward for slowing the economy,” said Cohen. “I think that’s what they want to see because of inflation.”
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The details do matter, said Cohen, and they’ll matter to the Federal Reserve. Expectations are still that the Federal Reserve may raise interest rates again in November by 75-basis points, and may again do so in December, as well.
“This is how we get the soft landing,” said Cohen. “We’re starting to see some of the softening of demand.”
“In terms of the housing markets, we still see supply constraints on housing, but higher interest rates are raising the cost of buying a home, so we’re seeing downward pressure on construction,” explained Cohen, as an example. “So housing is still in demand from a demographic standpoint, but higher interest rates may soften that demand.”
Preliminary data from Triangle Multiple Listing Service suggests that demand for buying homes in the Triangle may also have softened in September.
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Unemployment and wages
The output in the U.S. economy reflects two things: the number of hours that people are working, and the productivity of those people working.
Cohen noted that we’ve now seen three quarters of hourly wage data. “This data suggests that we are not in a recession in the third quarter.”
But those declines in employment in some sectors indicate there are some concerns in the economy.
“Unemployment is back down to 3.5%,” said Cohen. “That’s a 50-year low.”
Screenshot of a Kenan Institute slide, presented virtually via Zoom on October 7, 2022.
But again, there’s a mixed picture, said Cohen.
“The reason the unemployment rate declined is not a positive,” said Cohen. “In this case, the labor force declined, and that’s the reason the unemployment rate declined back down to its 50-year low.”
And the latest data indicates there may be continued concerns about inflation and what economists call the wage-price spiral.
“Wage growth continues to be quite strong relative to history,” said Cohen. “Up 3/10ths of 1% on the month, up 5% year-to-date.”
Still, said Cohen, wage growth is below the rate of inflation, and that may worry the Federal Reserve, due to concerns about the wage-price spiral.
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Tech employment and tech layoffs
“There’s been a lot of talk about tech,” said Cohen. “I want to point out that we are seeing some slowing in tech employment, but it is still growing, up 10,000 this month, and around the same the previous months.”
That’s even as news that Meta and Google, among others, have slowed hiring or have begun to make cuts.
“We’re still getting, despite all this bad news, strength in the tech sector,” said Cohen. “There are still positive signs that employment is growing in the tech sector.”
Still, noted Cohen, the data released by the Bureau and Labor Statistics doesn’t list job growth within “technology.”
“The Triangle has a particularly interesting dilemma, because we have many of these companies in the tech sector moving into the area,” said Cohen. “If these companies decide that they are not coming into the region, that could be a big negative.”
That’s what would worry him, said Dr. Cohen – that the companies that had announced they would come here pulled back and would not be hiring in the region.
