The May 2023 jobs report may give the Federal Reserve another reason to pause on interest rate hikes and another reason new graduates should not burst into the interview room asking for a big raise and remote work.
Workers may have a harder time getting the pay and perks they saw just last year. Worker power may be down.
The unemployment rate increased from 3.4% to 3.7%, but we need more signals than that to conclude the economy is weakening.
After all, the unemployment rate is a lagging indicator — reflecting the supply and demand of workers several months ago. (Remember, the Great Recession started in December 2007 but the unemployment rate continued to fall until February 2008 as the recession was in full swing.)
Other signals point to a weaker economy; Permanent layoffs are a higher share of the unemployed — 48.9% in May, which is a 7-percentage-point increase from a year ago. And former White House economist Betsey Stevenson notes that households reported job losses and employers reported job gains — another sign of weaker numbers.
Older People Still ‘Retired’ Signals A Weakening Economy
Owen Davis, a researcher at the Schwartz Center for Economic Policy Analysis, points out a persistently high share of people ages 55 to 64 are saying they are retired. Before the Covid-19 pandemic, the share of those who reported being retired in that age group was between 16% and 17%; now it is 17% to 18%. We know older people are more likely to be pushed out of the labor force, so being retired may be a more socially acceptable way to say they were laid off and can’t find another job. The fact that this group of experienced workers is not going back into the labor force shows a softer demand for workers.
Falling Worker Confidence Signals A Weakening Economy
On May 31, the JOLTS numbers showed worker confidence falling significantly from last year; quit rates fell to 2.4%, way down from the April 2022 quits rate of 3.0%.
In Friday’s Bureau of Labor Statistics report, a similar indicator of low worker confidence — the “job leavers” share of total unemployed people — shows continued softness. The share fell sharply to 12.6% compared to April’s rate of 13.3% and way down from a high of 15.3% in January 2022.
Real Wage Decline Signals A Weaker Economy
Firms are raising prices faster than they are raising wages. Workers may see a wage hike on paper but higher prices are eroding their buying power. Average weekly earnings for all private sector workers in May were $1,146.99 per week, up from $1,109.28 from a year ago. But to keep up with inflation, workers needed about $17 more.
Inverted Yield Curve Signals A Weaker Economy
Another sign that a recession may be underway is an inverted yield curve — the spread between 10-Year Treasury Constant Maturity and 2-Year Treasury Constant Maturity bonds adjusted for inflation. The negative yield curve points to a recession.
About six weeks ago, 47% of economists working for corporations expected a recession by the end of the year, which is pretty high. And workers’ confidence is also low. Workers’ estimation that they could find a job in three months if they lost their position today fell from 58% in May 2022 to 55% in April 2023.
There was a glorious moment for workers negotiating better pay and working conditions a few months ago. Today I advise new graduates to concentrate on how they can solve the problems facing a prospective employer rather than expecting employers to want to solve theirs.
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