New federal data showing steady demand for workers and historically low levels of layoffs raised doubts Wednesday about how close the U.S. economy could be to a recession.
The November Job Openings and Labor Turnover Survey (JOLTS), released Wednesday by the Labor Department, showed the job market holding steady despite high interest rates meant to weaken the economy.
Many economists still believe the U.S. will slip into a recession at some point this year, especially if the Federal Reserve follows through on more planned interest rate hikes. The technology sector, finance and other industries hit hard by rising rates are also expected to see higher layoffs.
But the JOLTS report is the latest sign that the economy on the whole will be harder to weaken than some experts expected.
“A labor market this strong means an imminent recession is highly improbable. This year will pose many challenges for the US economy, but the labor market looks set to enter with considerable strength,” said Nick Bunker, head of economic research at Indeed Hiring Lab, in a Wednesday analysis.
Job openings remained near record high, layoffs remained below pre-pandemic totals and the percentage of workers who quit their current jobs — a sign of confidence in their ability to get a new one — held steady.
“November was the 21st straight month that the layoffs rate was below its all-time low prior to 2020. Some sectors are clearly going through a painful period, but layoffs and discharges remain subdued in the aggregate,” Bunker said.
The Fed is attempting to bring inflation down by making fewer businesses and households afford goods and services at current prices. By raising interest rates, the Fed makes it harder for businesses to afford hiring workers and raising wages. The weaker job market often forces US households to cut back on their spending, which could push businesses to lower their prices.
The Fed tried to weaken the job market in 2022 by spiking interest rates at a record-breaking pace, boosting its baseline range from near-zero in March to a midpoint of 4.25 percent in December. But the U.S. still managed to add nearly 400,000 each month through November last year and keep the jobless rate near a pre-pandemic low of 3.5 percent.
Near-record numbers of open jobs and a persistent labor shortage have forced businesses to boost wages to attract candidates and prices to compensate for that higher pay. The U.S. had 10.5 million open jobs for 6 million unemployed Americans in November, according to Labor Department data.
That dynamic, Fed officials say, is one of the main forces keeping inflation high.
“We have too many jobs and too few workers, so that means that wage inflation is going to be far from a sustainable average, and we’re going to have that passing through to prices. That’s what we’re working on right now,” said Mary Daly, president of the Federal Reserve of San Francisco, at an event last month hosted by the American Enterprise Institute.
The December jobs report set to be released Friday will give the Fed and policymakers a clearer picture of their impact on the job market.
While the job market has been resilient amid forces meant to bring it down, another surprisingly strong batch of jobs data could convince the Fed to push interest rates even higher. That could boost the chances of a recession as the economy feels the brunt of steeper borrowing costs.
“Workers overwhelmingly quit their old jobs to take new ones, which is a critical fuel for wage growth. Wage growth may have moderated recently, but that slowdown is unlikely to continue if quitting remains high,” Bunker said.