Economic Update: April 2023

Leisure and hospitality once again lead the pack in jobs gains, though remain short of pre-pandemic levels. And while state and local government jobs increased by 39,000, there remains a gap of 362,000 since Feb 2020, with two-thirds of that, problematically, in the education sector.

Some good news from March’s report, Black unemployment rate tumbled to a record low 5%, according to the data going back to 1972. What’s more, it dropped for the “right” reasons as Black LFPR and EPOP both rose, and for the first time, the Black EPOP ratio is now higher than white EPOP (meaning a higher share of Black people are working than white people). In fact, Black employment has been rising steadily in the last 5 months – possibly due to increased availability of remote work. Recent studies indicate remote work is particularly attractive for employees of color, who may be drawn to work at home to avoid microaggressions in the workplace.

Despite the resilient jobs report, the consensus seems to be that the job market is, in fact, cooling down. Wage growth continues to slow, and the 3-month annualized wage growth was 3.2%. The standard target for wage growth is the Fed’s 2% inflation goal + about 1.5% “long-term productivity growth”. With this formula March’s numbers don’t seem to indicate wage growth is driving inflation, and certainly not the “wage-price spiral” economists were worried about just a few months ago.

Other indications we are in a deceleration: temp agency employment, a strong indicator of labor market conditions to come, declined for the first time in 3 months and has been essentially flat in 2023. Job openings data for February from last week’s JOLTS report showed open roles are decreasing, and February was the first time since June 2021 that fewer than 10 million jobs remained open at the end of the month. Finally, the average number of weekly hours worked (another statistic economists closely watch for signs of a labor market slowdown) fell in March from 34.5 to 34.4. LinkedIn reports that as labor markets cool down, job seekers are intensifying their search efforts, and in March 2023, the average number of applications per applicant in the U.S. increased 35% over last year.

While layoffs still remain historically low, we may be poised for an uptick. Labor hoarding might be artificially inflating jobs market strength by supporting extra spending throughout the economy. The question remains on how long employers can justify keeping extra workers on their payrolls as the economy slows. A recent report from outplacement firm Challenger, Gray & Christmas that showed U.S. job cuts in March increased by 15% from February. And just last week, the Conference Board launched its new Job Loss Risk Index: a tool to measure the likelihood of layoffs across the economy and which industries are most at risk. The Fed, for its part, expects unemployment to rise to 4.5% by the end of this year, an increase in magnitude that historically has always involved recession.

On the topic of recession, we’ve still got a mixed bag of opinions moving into the second quarter of the year. In analyzing the bond market the New York Fed is indicating about a 58% probability of recession in the next 12 months. Wall Street’s overall consensus is hovering around a 65% chance of recession, but Goldman Sachs is pegging the odds at closer to 35%. Forbes has built a helpful recession tracker, if you’d like to keep tabs on key indicators of economic health.

And as always we find some interesting anomalies in our analysis along the way. While many major employers have been laying off thousands of people, small businesses are growing in a significant way. In fact, 8 in 10 new hires in February were at companies with fewer than 250 employees. At the same time, the National Federation of Independent Business’s Small Business Optimism Index decreased in March to 90.1, marking the 15th consecutive month below the 49-year average of 98. Their survey of small business owners shows a group who, at the same time, see deteriorating business conditions. Credit availability has also tightened after last month’s sensational bank failures, which could make it harder for small businesses to access funding, and retain that talent.