The American labor market is at a tipping point as month after month of stagnating job growth raises alarm bells among economists regarding the long-term vitality of our economy. Allianz Trade’s senior economist for North America Dan North likens the economy’s pivot to that of a massive ship maneuvered by a tiny rudder. Change in today’s labor market is intentional and comes just like the tortoise — patient, slow, and steady. Wage growth Recent data shows that job gains have averaged just 55,000 a month. This figure represents one of the slowest growth rates we’ve experienced over a 20-year span.
In November, the job market’s still-low-hire, still-low-fire tendency added to the uptick in the unemployment rate. This growth was in large part due to the influx of more people into the labor force without finding a job. Joe Brusuelas, an economist, estimates that approximately 50,000 new jobs per month are necessary to maintain stable labor market conditions.
Current Job Market Dynamics
The disappointing rate of job growth means even more than this fall’s economic misfires. Cory Stahle, an economist at Indeed Hiring Lab, notes that uncertainty regarding interest rates and general policy adds to the complexity of hiring decisions.
“There’s uncertainty around what rates are going to do, uncertainty around prices, uncertainty around general policy,” – Cory Stahle.
Even as businesses grapple with this unknown, Stahle notes that companies are finding it harder than ever to make hiring decisions.
“Unless that fog of uncertainty is broken, we’ll continue to see companies stumbling a little bit through that fog,” – Cory Stahle.
For employers, the perception of macro job stability has cooled employees on changing jobs. As North is clear to note, hiring may not be completely shut down, but workers are holding onto their jobs for dear life.
“Hiring, while certainly not on a freeze, is on hold; and people that have jobs are absolutely holding on to them with white knuckles,” – Dan North.
Potential Policy Impacts
Seema Shah, chief global strategist at Principal Asset Management, highlights that the longer-term implications of labor displacement and wage dynamics remain uncertain. She stresses that without the right policy changes, the labor market could miss its potential to thrive in these new realities.
Tyler Schipper, a second economist, asks whether recent policy changes should change expectations about how the labor market will recover. He adds that a Federal Reserve interest rate cut could result in a reacceleration in hiring. He cautions that it usually takes three to five quarters for such monetary policy changes to manifest in the economy.
“The question I ask myself is, ‘What would be the conditions in which I think the labor market would ramp back up?’ and some of those are policy-related,” – Tyler Schipper.
Schipper is doubtful on when a resolution will come. He worries that the crisis can’t be turned around in the near future.
“I have a hard time seeing those resolving themselves anytime soon,” – Tyler Schipper.
Demographic Challenges and Economic Headwinds
A few demographic trends are making the labor market situation even more challenging. With the aging of the Baby Boomer generation—and their slow but steady departure from the workforce—this labor supply is diminishing. Further complicating this, tighter immigration policies have added more sand to the gears by creating additional constraints on labor availability.
Tyler Schipper points out other potential headwinds to market growth, such as new developments in artificial intelligence and continued immigration enforcement. He warns that all of this has created a ‘perfect storm’ of uncertainty.
“For better or worse, I think we could be in this K-shaped economy for some time,” – Tyler Schipper.
Schipper concludes with a cautionary note regarding potential economic downturns:
“And I think the way out of it probably is that there’s a recession before things get better, which is never what you want to hear if you’re on the lower leg of the K,” – Tyler Schipper.