A ‘turning point’ on jobs: Soft landing for economy or recession?

RALEIGH – It is becoming increasingly obvious that the sensational job growth since the COVID pandemic is winding down. But there is good news in the same data: Federal Reserve efforts to fight inflation by raising interest rates are slowing the economy – and hiring – thus leading to a so-called soft landing: Less inflation, less growth, but no recession.

Economic watchers are waiting anxiously for new federal jobs data to be released on Friday. Layoffs are growing in number. Banking industry woes have been in the news – from the failure of Silicon Valley Bank (acquired by Raleigh-based First Citizens) to the forced merger of Credit Suisse (which has a big Triangle presence) with fellow Swiss bank UBS. So what will the end result be? If the jobs report is better than expected (a forecast of the lowest jobs increase in months at around 140,000), will the Fed keep raising rates and trigger an end to economic growth with a recession?

“As we await the latest employment report, last month’s collapse of Silicon Valley Bank and Signature Bank remains a hot topic in the business world,” says UNC-Chapel Hill’s Kenan Institute of Private Enterprise. “Will those failures lead to a financial contagion? What other economic fallout might we see?” Gerald Cohen, chief economist at the institute, will offer his assessment Friday morning after the federal jobs data is released.

Unemployment applications fall; 1.8 million people getting jobless benefits

Crystal ball forecasts

So what’s coming?

“My forecast is still that a recession occurs but with very, very modest harm to the job market,” N.C. State economist Dr. Mike Walden says. “The unemployment rate may rise to 4.5% or 5% from the current 3.5%, which is certainly good, but still a step back. Businesses will save labor expenses mostly by reducing job openings.”

Meredith College economist Dr. Anne York’s views are shifting.

“Given our overall trends in the economy with the Federal Reserve continuing to raise interest rates and cracks showing up in the stability of the banking system, I predict that at best we will have very low growth in the near future and if we do suffer declines in our economic indicators, hopefully they will be very small,” York says.

“I’m starting to agree more with Mike Walden that there are increasing odds of a shallow recession later this year or early next year.”

On that very point, Walden reiterates what he has said before – that a recession means more than just lost jobs.

“We won’t have an ‘official’ recession unless there is a contraction of aggregate production of products and services. The question is whether the labor market also deteriorates,” he says. “If it doesn’t, there may never be an official recession called, but my view is this is a secondary concern.

“If aggregate production drops – even if aggregate employment doesn’t decline – people will still feel the effects in smaller pay raises, fewer opportunities to change jobs, and just a pessimistic outlook. There are a number of economists who think a soft landing is possible, but most don’t.”

Growing bad signs

One bad sign about jobs locally is the drop of 800 jobs in Durham-Chapel Hill according to the latest North Carolina employment report. But there are others.

For example, outplacement services firm Challenger Gray & Christmas reported that layoffs surged in the first quarter to one of the highest numbers on record:

“Employers announced 270,416 cuts in the first quarter, a 396% increase from the 55,696 cuts announced in the same period one year prior. It is the highest first quarter total since 2020, when 346,683 cuts were announced January to March. It is the highest quarterly total since the third quarter of 2020 when 497,215 cuts were recorded.”

Source: Challenger, Gray & Christmas

And a closely watched survey from ADP reports 145,000 jobs were added in March – 65,000 fewer than expected and well under increases of 261,000 in February while far short of January’s 500,000 surge.

Those reports followed news Tuesday that open jobs in the United States fell to under 10 million for the first time in nearly two years.

CNN added this warning: “At its most recent policy-making meeting, the Fed released projections for the year ahead that showed unemployment could jump to 4.5%, representing another 1.5 million job losses, by the end of the year.”

Storm warnings

As the Federal Reserve continues to raise interest rates, the economy is slowing and executives are cooling in their desires to hire. That trend is documented in big drops in tech job postings by the NC Technology Association and a followup survey of tech executives. Plus, this week’s WRAL TechWire Jobs Report found the smallest number of job openings posted at recruiting sites in more than a year.

“We are at a turning point in the job market,” Walden says after reviewing the last N.C. unemployment data for February,” Sectors that grew during COVID – including tech and professional jobs – will be showing more weakness in upcoming reports.”

York sees positives and negatives in the February numbers.

US job openings fall below 10M for first time in nearly two years

“Taken as a snapshot, the NC and local labor markets look strong. The state unemployment rate of 3.6% in Feb 2023 is a very strong number and is lower than the 3.9% from the end of 2022, and most of our cities have unemployment rates in the 3% range. Nonfarm payrolls for the state increased by 8,900 jobs from the previous month. But of course the key concern is the direction of these labor market indicators and is the growth slowing down and by how much,” she explains.

“The growth in the number of jobs at the state and local level is very low and even negative for some regions” including Durham-Chapel Hill and Greensboro-High Point, where the numbers of employed dropped. But other areas such as Raleigh-Cary (+2,100) and Charlotte (+5,600) continued to add jobs.

Statewide employment at a glance

N.C. Department of Commerce graphic

‘Be ready for some bumps’

Yet, overall, Walden is worried about inflation, such as big jumps in gasoline prices.

“Look for more businesses to pull back job openings,” he warns. “The upcoming hikes in gas prices due to the OPEC+ cutbacks will add to concerns about a recession later this year. College grads will face more hiring challenges this summer, especially compared to recent years.

“On the positive side, I don’t see a calamitous job market as with both the COVID and subprime recessions. But workers as well as business owners need to be ready for some bumps in the economic road ahead.”

The latest national jobless data is due out Friday, and the Fed has wanted a slowdown in hiring. But will the Fed’s interest rate hikes slow the economy to a so-called “soft landing” with minimal impact on jobs? Or will the rate hikes, along with concerns about the banking system, trigger more layoffs and a recession?

A host of tech giants, from Amazon to Google, have slashed jobs. According to Layoffs.fyi, which track tech layoffs, 558 tech companies have laid off l167,804 employees just this year.

Outside tech, Walmart is laying off 2,000 warehouse workers. And some 5,000 executives at GM elected to take buyouts. FedEx, meanwhile, is going through a reorganization.

But not all signs are negative. For example, a new report says Raleigh ranks No. 5 among major U.S. metros for jobs.