12/07/2022 | Press release | Distributed by Public on 12/07/2022 09:23
Updated periodically, Economic Viewpoints provides a snapshot of the U.S. economy from the Economic Policy Division at the U.S. Chamber of Commerce.
Labor Force Continues Shrinking
December 7, 2022
The economy added 263,00 jobs in November. Expectations were for 200,000, so we exceeded them. But the labor force dropped another 186,000. That is bad, considering we have 4.3 million more job openings than workers to fill them.
Why it matters: We are now 102,000 workers below the pre-pandemic participation level. The labor force has shrunk for three straight months.
Be smart: Further complicating the strong topline jobs numbers is that the household survey showed the number of workers employed dropped by 138,000. Usually, the surveys of businesses (the 263,000 figure) and households are similar. No one is sure what to make of the surveys pointing in different directions. It is something to keep an eye on.
Bottom line: The continuing strength of the labor market and wages is a Catch-22 for the Fed. Large wage gains as we are seeing are a sign that inflation remains high. It could mean continued interest rate hikes, which is why the financial markets reacted badly to what was mostly an encouraging jobs report.
Job Openings Fall Slightly in October
December 1, 2022
There were 10.3 million job openings across the economy at the end of October. That is down 353,000 from September but still historically elevated.
Why it matters: There are now 4.3 million more job openings than unemployed workers. Businesses still struggle to find workers.
By the numbers:
Big picture: The cooling economy is causing openings to drop, but not by much. The still-tight labor market is a big part of "second-hand pessimism." Businesses say the economy is poor, but they're still hiring as if it's strong.
Similarly, workers remain confident they can leave their jobs and find new ones, even as their confidence in the economy is low.
Bottom line: The slowing economy should cause the labor market to cool eventually. It is a key metric the Fed will watch to evaluate whether their anti-inflationary policies are working. But so far, the unique post-COVID labor market is showing no signs of slowing.
What to Watch in November Jobs Report
November 29, 2022
The November jobs report will come out on Friday. Most people will be watching the overall jobs created figure, which is expected to be 200,000 jobs added to the economy. But our main labor market problem is not job creation. It's a lack of workers to fill open jobs.
Why it matters: In our current environment, it's more constructive to look at the labor force numbers to determine if more people are coming back into the workforce.
By the numbers: There are three key labor force data points to look at:
Bottom line: The job market will remain tight and continue exerting upward pressure on inflation until more workers enter the labor force. Look to these data points to see if we made progress last month.
Gas Prices Higher This Thanksgiving 2021
November 22, 2022
According to the Farm Bureau, the cost of Thanksgiving dinner is more expensive this year - $64.05 for a group of ten compared to $53.31 last year.
Why it matters: Gas and food prices continue to take a bite out of families' budgets.
By the numbers: A gallon of gas is $3.65 on average across the country this week, up from $3.40 at this time last year. Gas prices have come down from recent record highs.
Be smart: Inflation is high, 7.7% on an annual basis, but it is even higher for necessities like gas and food.
Bottom line: Despite the pressure these higher prices are putting on consumers, they keep spending. For the economy, that's something to be thankful for.
Consumers Keep Spending Faster than Inflation
November 17, 2022
Retail sales - spending at retail stores and bars and restaurants - rose a surprising 1.3% in October.
Why it matters: That exceeded inflation handily. Prices rose 0.4% in October, so inflation-adjusted retail sales rose a hardy 0.9%.
Be smart: Consumers are still spending even though inflation continues to drive prices higher, stretching budgets.
Looking ahead: How long this unique scenario can continue is hard to gauge.
Bottom line: The situation could reverse quickly, but for now consumers' surprising resilience is driving "second-hand pessimism," which is the divergence between how consumers and businesses tell surveys they feel about the economy (bad) and how they're acting (spending and investing).
Consumer Sentiment Falls
November 15, 2022
Consumer Sentiment fell sharply in November. It hit an all-time low in June and had risen four straight months since then, albeit modestly.
Why it matters: The pronounced drop in sentiment is surprising because inflation moderated in October. With inflation being the main concern for consumers it would follow that their mood would improve, but that hasn't happened.
Be smart: The economic data and behavior of consumers and businesses are not following expected patterns. Both consumers and businesses feel bad about the economy, yet consumers keep spending and businesses keep hiring, raising wages, and investing.
Looking ahead: Updated spending data, which we'll get later this week, will tell us more about whether this phenomenon continues, or whether spending is finally slowing to match the poor mood of consumers.
Jobs Added in October, But Labor Force Declines
November 8, 2022
The economy added 261,000 jobs in October. Expectations were for about 200,000, so we exceeded them. That's the good news.
The bad news is that labor force participation is still lagging badly, even as we keep adding jobs and have so many unfilled positions.
Why it matters: If we had the same participation rate now as pre-pandemic, there would be 3.05 million more workers in the labor force.
Be smart: Also concerning is which survey in the jobs report to rely on. The 261,000 jobs gain comes from a survey of businesses. That's usually where we get the job creation number.
Other key data points:
Bottom line: Future revisions will shed more light. For now, it's best to be happy with the jobs added but not be overly optimistic about what it means for the economy's direction.
Job Openings Rose Again in September
November 3, 2022
Job openings were 10.7 million at the end of September. That is surprisingly up 437,000 from August when openings were 10.3 million.
Why it matters: The worker shortage is not easing; it is worsening. There are 5 million more job openings than unemployed workers.
Be smart: A cooling economy would ordinarily cause businesses to cut back on their job postings, as they did in August. But August's drop in postings is an outlier as openings rebounded in September.
Hiring and quits remained at roughly the same levels as in August. So businesses are still adding workers, and workers are still confident they can quit their current jobs and find better ones easily.
Bottom Line: The still-strong labor market is a big part of the "second-hand pessimism" narrative of the current state of the economy. Businesses say the economy is poor, but they're still hiring as if it's strong.
Income and Spending Up in September
November 1, 2022
Income and spending rose more than inflation in September.
Why it matters: These are strong results and give another data point in favor of second-hand pessimism. The perception is that the economy is slowing (and it is), but consumers are still earning and spending. Their actions may keep the economy from a steeper decline.
Be smart: Spending growth (after accounting for inflation) outpaced inflation-adjusted income growth. It was able to do that because of accumulated savings.
Bottom line: Consumers' savings could allow their spending to keep up with inflation and keep pessimism second-hand. But that won't last forever.
The Economy Grew 2.6% in Q3
October 27, 2022
The economy grew 2.6% in the 3rd quarter (July - September). We estimated growth of 2.1%, so the economy slightly outperformed our expectations.
Why it matters: The strong 3rd quarter means the description of the current economic situation as reflecting second-hand pessimism is still accurate.
Be smart: The strong growth in Q3 is a reversal from Q1 and Q2 when the economy contracted by 1.6% and 0.6% respectively.
By the numbers: Growth came from gains in personal spending, business investment, trade flows, and government spending:
Housing Prices Fall in August
October 25, 2022
The latest data shows the housing market is struggling. Prices fell 1.1% nationwide in August.
Why it matters: Housing prices are falling because interest rates are rising and cooling demand.
Be smart: We are not in the same situation as we were in 2006 and 2007. Homeowners in general have much more equity than in that period and fewer of them have adjustable-rate mortgages.
Bottom line: The housing market is not as hot as it was a few months ago. That's bad news if you waited to sell until now, but it is not like the housing bubble in 2007.
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About the authors
Curtis Dubay
Chief Economist, U.S Chamber of Commerce
Curtis Dubay is Chief Economist, Economic Policy Division at the U.S. Chamber of Commerce. He heads the Chamber's research on the U.S. and global economies.