It should come as no surprise that something as simple as marking the start of a recession would provoke controversy. Everything became politicized. One can point out that the current economic downturn is still fairly mild. Or that the previous administration’s pandemic mitigation policies were as much (if not more) a factor in stifling economic growth as the current administration’s Wokes effect. One could, if so inclined, point to the Fed’s weak response to steadily rising rates throughout 2021.
but not. The response was biased as expected, and defies the very definition of stagnation itself. Postmodernists and lawyers, always a disproportionately large group of the worst people in society, currently occupy a high position in the discourse.
However, as recessions continue, the current recession is a strange duck indeed. Examples of recessions in which the labor market was strong, not to mention the strength of the current market, are essentially lacking in recent economic history.
US unemployment rate (%) versus annual GDP, 2012 dollars (1960–present)
In the post-World War II era, increases in unemployment delayed the onset of recessions by varying amounts. In twelve economic recessions, the lowest employment rate preceded the onset of the recession by an average of six months, by a range of one to sixteen months. Unemployment does not cause a recession. Recessions – low economic growth – lead to high unemployment. So, if history is any evidence of this, it could be that the unemployment rate has risen from months or even more than a year.
But why is the job market so hot? Does this not contradict the concepts of the economy in a state of deflation? Maybe, but not necessarily. In light of the unprecedented conditions created by lockdowns, stay-at-home orders and other trade disincentives over the past few years, alternative or contributing explanations are worth considering.
Inflation is at levels not seen in 40 years. US stock markets (read: 401K and IRAs) had their worst start in six months since 1970 in the first half of 2022. CBSNews sums it up:
[D]The ata shared by Morningstar shows that the most popular mutual funds — mutual funds that hold a range of investments and automatically adjust to their “target” retirement date — have lost between 10% and 22% of their assets under management this year… with an average account A 401(k) balance of just $17,700 before the pandemic, this year’s market drop will devalue more than $3,500. A potential retiree with a balance of more than $81,000 — which would put him in the top 25% of savers — would see his nest egg shrink to just $64,800.
The specter of a new Covid virus is causing a return to mitigation policies, as well as growing concern that monkeypox may be next. the disease FamousVery much alive. There are only a few months left until the midterm elections. For these and other reasons, why isn’t there a rush into or more likely back into the workforce? As mentioned, the sheer number of open jobs was another unusual feature of the post-pandemic recession and the new recession, and it accommodated this shift.
Several additional facts support the “journey to jobs” interpretation.
- Not only was last Friday’s job report unexpectedly strong, the previous report was also revised upward with over 20,000 new jobs. Also, the types of jobs occupied are varied, ranging from hospitality to interest rate sensitive sectors such as construction. Employment prevalence, as measured by the Bureau of Labor Statistics (BLS), is currently 68.6 percent, indicating not only employment expansion, but jobs filled across a wide range of industries. Thus, the rush to the workforce is wide-ranging, and not driven by factors that are unique to a particular industry or sector.
BLS Employment Posting in Non-Farm Payrolls (2017-Present)
- Average hourly wage growth in the United States, year-over-year, has been strong since mid-2021, easing slightly since March 2022. But the increase in inflation has largely outweighed the benefits of wage increases. In just one example, from the beginning of 2021 through mid-June 2022, the average price of a gallon of gasoline in the United States increased by 113%. Since then, it’s down about 80 cents per gallon, but it’s still up 85 percent since the beginning of last year.
US average hourly earnings year on year vs. CPI year on year (2012–present)
- Savings rates are lower than they were before the Covid pandemic. Between 2012 and the end of 2019, personal savings as a percentage of disposable income averaged 7.4 percent, with a brief decline of 5.6 percent in early 2013 as the anemic recovery from the Great Recession began. As of June 2022, US personal savings amounted to 5.1 percent of disposable income, the lowest level since October 2009, shortly after the collapse of Lehman Brothers. It should be noted that, in contrast to the current high prices, the earlier decline in savings occurred during a short deflation, which may offset the effect of the household budget on increased spending.
Personal savings in the United States as a percentage of disposable income (2012–present)
(Source: Bloomberg Finance, LP)
- Not surprisingly, the number of Americans holding two jobs is on the rise. The all-time high number of Americans holding two jobs was affected in September 2019. While that number has not been reached, the rate of American workers holding second jobs has jumped. The increase in the number of Americans holding two jobs has increased by 1.1 million over the 14 months since the start of 2021. Before the pandemic, it took five to six years (roughly between 2013 and mid-2019) for the same number of people to take two jobs. It is also likely that this data greatly underestimates the actual number of individuals with two forms of employment, since many (if not most) secondary jobs are done on a cash basis, and thus “off the books”.
Number of multi-employees in the United States (2012–present)
But most surprisingly, in July 2022, not only did Americans have two jobs, but Two full-time jobs, reached a record level. (Shown here is a twenty-year trend and a simple moving average.)
Number of US multi-employees with primary and secondary full-time jobs (2002–present)
Increased uncertainty may explain the seemingly conflicting labor market. The rapid onset of worrying about eroding purchasing power, diminishing retirement prospects, and declining growth could drive negativity into action. Individuals may respond to increased financial insecurity by securing, improving, or adding to their jobs.
Much of this explanation conflicts with classic manifestations of economic uncertainty. Suspicions among workers, consumers or producers usually manifest as delayed consumption, deferred hiring plans, or canceled business expansion plans. Often referred to as avoiding irreversible investments. Among the masses currently recovering to the job market, there are undoubtedly some millions who have retired early during the pandemic. Many women who could not secure childcare during the pandemic closures of schools were also forced to give up their jobs.
The Great Reconsideration is likely to come to an end. But none of this necessarily means impending disaster, economic or otherwise. The case presented here aims to discredit the automatic assumption that the current set of economic conditions, particularly in the labor market, cancel out the possibility or even the possibility of a classic economic recession. Unemployment, for good reason, lags behind the onset of recessions. Assuming that a massive explosion in employment conclusively indicates optimism or portends a rapid resumption of economic growth is simply unjustified.