Pre-Market Actions: Why the US Labor Market Hasn’t Imploded

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Despite the stock market rally in October that gave the Dow its biggest monthly gain in more than 45 years, economists are warning that there is a very real danger of a recession in the United States. Mortgage rates are at their highest levels since 2002, consumer spending and business investment are falling and the Federal Reserve is fighting persistent inflation with higher interest rates.

But in some ways, U.S. labor markets have bucked the trend. The unemployment rate is 3.5%, a five-decade low. The demand for workers is strong. There are currently 1.7 job vacancies for every unemployed American.

We have all the ingredients for a recession, and yet companies are still hiring.

What is happening: New data this week will likely show that there were 10 million job openings at the end of September in the United States. That’s about the same as in August and still far more than the 7 million openings before the pandemic.

Labor costs have also grown rapidly as employers raise wages and benefits to attract and retain employees. US employment costs rose 1.2% in the third quarter, according to Labor Department data released last week.

“While job postings should continue to decline in the coming months, the fact that they remain well above normal levels should continue to support strong job growth, possibly through 2023,” David said Kelly, global chief strategist at JPMorgan Funds.

The labor market is good for workers but not good for inflation. The mismatch between hiring demand and the supply of workers is keeping wages high and protecting Americans from a slowdown as the Federal Reserve works to cool the economy and limit demand.

The high employment figures signal to the Fed that it must continue its aggressive cycle of rate hikes to moderate inflation. This further increases borrowing costs and slows growth.

What’s different: History shows us that when the Fed tightens, employment falls: during periods of high inflation in the 1970s and 1980s, Fed tightening led to unemployment rates of 9% in 1975 and 10 .8% in 1982.

The Fed’s projections note that unemployment rates should rise to 4.4% by the end of 2023, nearly a percentage point higher than where they are now.

The problem is that this time, the shape of the labor market is different. Employers are less concerned about layoffs and more concerned about their ability to fill open positions. So they’re hoarding workers and holding back layoffs, just in case.

Fed Vice President Lael Brainard said earlier this month that “companies facing significant challenges in finding and retaining skilled workers after the pandemic may be more inclined than in past cycles to retain their workers rather than laying them off as demand weakens.”

No one is quite sure how the economy will fare in the coming months. If the Fed pulls off a soft landing, that means it could remain incredibly difficult to hire qualified employees. If the economy grinds to a halt, expect more drastic HR moves.

Next: This week is full of labor data and policy. JOLT job opening data for September is expected to be released on Tuesday at 10:00 a.m. ET. The Fed meets this week and is expected to raise interest rates sharply again on Wednesday. That meeting comes two days before the October jobs report, which some experts fear will show even more signs of inflation due to strong wage growth.

The Dow fell about 80 points in trading Monday, but still gained 14% in October; this is its best monthly gain since January 1976, reports my colleague Paul R. La Monica.

The upward bounce is a bit of an anomaly.

Chips are up almost 10% this year. Meanwhile, the S&P 500, which closed up 0.8% on Monday, is down about 20% in 2022. The tech-heavy Nasdaq ended 1% lower on Monday and has plunged 30% this year year. But both indices also had strong Octobers. The Nasdaq rose 4% while the S&P 500 rose 8%.

Undeniably, the overall market is struggling this year due to inflation concerns and the fact that the Federal Reserve has raised interest rates significantly to try to beat the scourge of rising prices.

But there’s a saying on Wall Street that there’s always a bull market somewhere. The Dow proves it, along with a long list orf well-known brand stocks trading at all-time highs.

Oil stocks and healthcare companies lead the market, with Chevron ( CVX ), Merck ( MRK ) and Amgen ( AMGN ) topping the Dow leaderboard.

Chevron is even trading near an all-time high. So is rival (and former Dow component) Exxon Mobil (XOM). Big Pharma leader Eli Lilly ( LLY ) and health insurers Cigna ( CI ) and Humana ( HUM ) are also at all-time highs.

It’s not just energy and healthcare stocks posting solid gains this year. Several consumer staples companies (companies that sell food and beverages) are also thriving. McDonald’s ( MCD ), Pepsi ( PEP ), and cereal makers General Mills ( GIS ) and Post ( POST ) have recently hit all-time highs.

There is a clear gender bias in Federal Reserve congressional hearings, according to new research by James Bisbee at New York University, Nicolò Fraccaroli at Brown University and Andreas Kern at Georgetown University.

The academics analyzed all congressional hearings attended by the Federal Reserve chairwoman from 2001 to 2020 and found that lawmakers who interacted with both Yellen and at least one other male Fed chair during that period were interrupt Yellen more and interacted with her in more aggressive tones. .

“Our results point to the important role of social biases that bleed into seemingly unrelated policy domains,” they wrote.

The daughter effect: Interestingly, the researchers found that the increase in hostility experienced by Yellen was absent among lawmakers with daughters.

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