{"id":32128,"date":"2022-12-02T01:27:00","date_gmt":"2022-12-02T01:27:00","guid":{"rendered":"https:\/\/www.lifeandnews.com\/articles\/?p=32128"},"modified":"2022-12-03T02:59:54","modified_gmt":"2022-12-03T02:59:54","slug":"jobs-are-up-wages-are-up-so-why-am-i-as-an-economist-so-gloomy","status":"publish","type":"post","link":"https:\/\/www.lifeandnews.com\/articles\/jobs-are-up-wages-are-up-so-why-am-i-as-an-economist-so-gloomy\/","title":{"rendered":"Jobs are up! Wages are up! So why am I as an economist so\u00a0gloomy?"},"content":{"rendered":"\n

Edouard Wemy<\/a>, Clark University<\/a><\/em><\/p>\n\n\n\n

In any other time, the jobs news that came down on Dec. 2, 2022<\/a>, would be reason for cheer.<\/p>\n\n\n\n

The U.S. added 263,000 nonfarm jobs in November, leaving the unemployment rate at a low 3.7%. Moreover, wages are up \u2013 with average hourly pay jumping 5.1% compared with a year earlier.<\/p>\n\n\n\n

So why am I not celebrating? Oh, yes: inflation.<\/p>\n\n\n\n

The rosy employment figures come despite repeated efforts by the Federal Reserve<\/a> to tame the job market and the wider economy in general in its fight against the worst inflation in decades<\/a>. The Fed has now increased the base interest rate six times<\/a> in 2022, going from a historic low of about zero to a range of 3.75% to 4% today. Another hike is expected on Dec. 13. Yet inflation remains stubbornly high, and currently sits at an annual rate of 7.7%<\/a>.<\/p>\n\n\n\n

The economic rationale behind hiking rates is that it increases the cost of doing business for companies. This in turn acts as brake on the economy, which should cool inflation.<\/p>\n\n\n\n

But that doesn\u2019t appear to be happening. A closer dive into November\u2019s jobs report<\/a> reveals why.<\/p>\n\n\n\n

It shows that the labor force participation rate \u2013 how many working-age Americans have a job or are seeking one \u2013 is stuck at just over 62.1%. As the report notes, that figure is \u201clittle changed\u201d in November and has shown \u201clittle net change since early this year.\u201d In fact, it is down 1.3 percentage points from pre-COVID-19 pandemic levels.<\/p>\n\n\n\n

This suggests that the heating up of the labor market is being driven by supply-side issues. That is, there aren\u2019t enough people to fill the jobs being advertised.<\/p>\n\n\n\n

Companies still want to hire \u2013 as the above-expected job gains<\/a> indicate. But with fewer people actively looking for work in the U.S., companies are having to go the extra yard to be attractive to job seekers. And that means offering higher wages. And higher wages \u2013 they were up 5.1%<\/a> in November from a year earlier \u2013 contribute to spiraling inflation.<\/p>\n\n\n\n

This puts the Fed in a very difficult position. Simply put, there is not an awful lot it can do about supply-side issues in the labor market. The main monetary tool it has to affect jobs is rate hikes, which make it more costly to do business, which should have an impact on hiring. But that only affects the demand side \u2013 that is, employers and recruitment policies.<\/p>\n\n\n\n

So where does this leave the possibility of further rate hikes? Viewing this as an economist, it suggests that the Fed might be eyeing a base rate jump of more than 75 basis points on Dec. 13, rather than a softening of its policies as Chair Jerome Powell had suggested as recently as Nov. 30<\/a>. Yes, this still would not ease the labor supply problem that is encouraging wage growth, but it might serve to cool the wider economy nonetheless.<\/p>\n\n\n\n

The problem is, this would increase the chances of also pushing the U.S. economy into a recession \u2013 and it could be a pretty nasty recession<\/a>.<\/p>\n\n\n\n

Wage growth still trails behind inflation, and for one reason or another people have been opting out of the labor market. The logical assumption to make is that to make up for both these factors, American families have been dipping into their savings<\/a>.<\/p>\n\n\n\n

Statistics back this up. The personal saving rate \u2013 that is, the chunk of income left after paying taxes and spending money \u2013 has fallen steeply, down to 2.3% in December from 9.3% before the pandemic<\/a>. In fact, it is at its lowest rate since 2005.<\/p>\n\n\n\n

So, yes, employment is robust. But the money being earned is eroded by soaring inflation. Meanwhile, the safety net of savings that families might need is getting smaller.<\/p>\n\n\n\n

In short, people are not prepared for the recession that might be lurking around the corner.<\/p>\n\n\n\n

And this is why I am gloomy.<\/p>\n\n\n\n

Edouard Wemy<\/a>, Assistant Professor of Economics, Clark University<\/a><\/em><\/p>\n\n\n\n

This article is republished from The Conversation<\/a> under a Creative Commons license. Read the original article<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

Edouard Wemy, Clark University In any other time, the jobs news that came down on Dec. 2, 2022, would be reason for cheer. The U.S. added 263,000 nonfarm jobs in November, leaving the unemployment rate at a low 3.7%. Moreover, wages are up \u2013 with average hourly pay jumping 5.1% compared with a year earlier. […]<\/p>\n","protected":false},"author":44,"featured_media":32129,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[277],"tags":[224,1581,13053,1031,3371,679,1795,348,11014,9530,410],"_links":{"self":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/32128"}],"collection":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/users\/44"}],"replies":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/comments?post=32128"}],"version-history":[{"count":1,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/32128\/revisions"}],"predecessor-version":[{"id":32130,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/32128\/revisions\/32130"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/media\/32129"}],"wp:attachment":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/media?parent=32128"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/categories?post=32128"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/tags?post=32128"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}