CHAPEL HILL – The latest jobs report from the Labor Department leaves open the key question for the U.S. economy, said Dr. Gerald Cohen, the chief economist at the Kenan Institute at the University of North Carolina at Chapel Hill.
That question: Whether we’ll experience a recession or whether the country may still be able to navigate through a “soft landing.”
America’s job market continues to defy expectations. On Friday, the Labor Department announced that U.S. companies had created 263,000 jobs in November — more than experts expected and a sign of a strong economy.
But there’s another warning sign that has economists concerned.
The spread between the 10-year treasury and the 3-month treasury bill indicates that we are still very likely to experience a recession at some point in the next year or so, Cohen noted.
That spread measures the difference in long-term and short-term interest rates to predict a recession. Every time it has dropped below zero, the U.S. has entered a recession. And it just dropped below zero in the last month.
“Sometime in the next year to 18 months, I believe that we will have a recession based on this indicator,” Cohen said. “But this data suggests that we are not there yet.”
There will be an economic downturn, but it’s most likely that it will be a mild one, Cohen said. “I guarantee there will be a downturn,” he said.
And the latest jobs report numbers, which outpaced analyst and economist expectations, means that the Federal Reserve may still have work to do, said Dr. Michael Walden, an economist and a William Neal Reynolds Distinguished Professor at North Carolina State University, in an interview with WRAL TechWire on Friday about the better-than-expected jobs report.
“Combining with yesterday’s report of strong consumer spending, it appears the Fed’s efforts to significantly slow the economy have not yet had a big impact,” Walden said.
From a demographics perspective, Cohen explained, the U.S. economy ought to have employment growth of about 100,000 or so on a monthly basis. So, numbers that track closer to that mark would characterize a potential for a soft landing, whereas negative figures would indicate a recession. But above that mark, we might expect to see the Federal Reserve continue to consider increasing the federal funds rate in an ongoing attempt to combat rising inflation.
“Until we start shedding jobs, we need people coming into the labor force to meet those jobs,” said Cohen. “Our participation rate on the whole remains well below pre-pandemic levels.”
Prime age worker participation is close to pre-pandemic, but a still bit below. The national unemployment rate is 3.7 percent. That’s close to a 50-year low.
Triangle economy remains strong, competitive
There’s no reason to think that the Triangle will see a substantial slowdown in the regional economy, or in the competitive labor market where there are still hundreds of thousands of open jobs, Cohen noted.
“The Triangle, in particular, we have a particularly strong labor market and strong economy, because of very strong growth in the region, and the influx of employment companies coming in,” said Cohen. “I think that [Triangle companies] will continue to say that they need to continue to look for as many good people as they can.”
That’s in part due to companies such as Google and others who are opening up new offices in the region and plan to hire hundreds – or thousands – of workers in the area.
“They are going to continue to make the competition for skilled labor higher, and it’s not just for skilled labor,” said Cohen. The addition of new high-wage jobs in the regional economy is likely to create spillover effects in the local labor market, which could mean more service-sector jobs, more construction jobs, and more spending in the region as workers do take high-wage roles at expanding firms.
“There’s nothing in this report that makes me think that we’re seeing a substantial slowdown in the Triangle area,” said Cohen.
The recent string of interest rate hikes from the Federal Reserve, designed to wrangle inflation and slow new jobs, hasn’t had the desired effect yet. That means workers are at a premium and in a strong position to demand higher salaries.
“I think employees have the upper hand and can continue to ask for wage gains,” Cohen said.
And even though there are some concerns among the headlines in recent weeks about layoffs and hiring freezes, Cohen noted that the most recent jobs report and the analysis conducted by the Kenan Institute shows that tech sector employment continues to increase.
“Another discussion that has been really negative is the tech sector,” said Cohen. “And yet all the discussion about hiring freezes and layoffs, employment continues to grow in the tech sector.”