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Despite a stock market rebound in October that gave the Dow Jones its biggest monthly gain in more than 45 years, economists are warning that there is a very real danger of a recession in the United States. Mortgage rates are at their highest level since 2002, consumer spending and business investment are down, and the Federal Reserve is fighting persistent inflation with higher interest rates.
But somehow, US labor markets have bucked the trend. The unemployment rate is 3.5%, a five-decade low. The demand for workers is strong. There are currently 1.7 job vacancies for every unemployed American.
We have all the ingredients for a slowdown and yet companies continue to hire.
What is happening: New data this week will likely show there were 10 million job openings at the end of September in the United States. That’s about the same as August and still well above the 7 million pre-pandemic opens.
Labor costs have also risen at a rapid rate as employers increase wages and benefits to attract and retain employees. US employment costs rose 1.2% in the third quarter, according to Labor Department data released last week.
“While job vacancies are expected to continue to decline in the coming months, the fact that they remain well above normal levels should continue to support strong employment growth, possibly through 2023. “said David Kelly, chief global strategist at JPMorgan Funds.
The labor market is good for workers, but it is not good for inflation. The mismatch between the demand for hires and the supply of workers is keeping wages high and protecting Americans from a downturn, just as the Federal Reserve is working to cool the economy and limit demand.
The strong jobs numbers signal to the Fed that it needs to continue its aggressive rate hike cycle to temper inflation. This further increases borrowing costs and slows growth.
What is different: History tells us that when the Fed tightens, employment falls: during periods of high inflation in the 1970s and 1980s, Fed tightening led to unemployment rates of 9% in 1975 and 10, 8% in 1982.
The Fed’s own projections indicate that unemployment rates are expected to reach 4.4% by the end of 2023, nearly a percentage point higher than their current level.
The problem is that this time the shape of the labor market is different. Employers are less concerned about layoffs and more concerned about their ability to fill vacancies. So they are hoarding workers and delaying layoffs, just in case.
Fed Vice Chairman Lael Brainard said earlier this month that “companies that have experienced significant difficulty finding and retaining skilled workers in the wake of the pandemic may be more inclined than in cycles. precedents to keep rather than laying off their workers as demand wanes”.
Nobody knows exactly how the economy will land in the coming months. If the Fed manages a soft landing, that means it could remain incredibly difficult to hire qualified employees. If the economy shuts down, expect more drastic HR moves.
What’s next: This week is full of labor data and politics. JOLT job posting data for September is expected to be released Tuesday at 10 a.m. ET. The Fed meets this week and is expected to raise interest rates sharply again on Wednesday. The meeting comes two days before the October jobs report, which some experts say will show even more signs of inflation due to strong wage growth.
The Dow fell about 80 points in trade on Monday, but still gained 14% in October – its best monthly gain since January 1976, reports my colleague Paul R. La Monica.
The upward bounce is a bit of an anomaly.
Blue chips remain down almost 10% this year. Meanwhile, the S&P 500, which closed down 0.8% on Monday, has fallen about 20% in 2022. The tech-heavy Nasdaq ended down 1% on Monday and plunged 30 % This year. But both indices also had good Octobers. The Nasdaq rose about 4% while the S&P 500 rose 8%.
The broader market is undeniably struggling this year due to inflation concerns and the fact that the Federal Reserve has raised interest rates significantly in an attempt to beat the scourge of rising prices.
But there’s a saying on Wall Street that there’s always a bull market somewhere. The Dow proves it, with a long list ohf well-known brand stocks are trading at record highs.
Oil stocks and healthcare companies dominate the market, with Chevron (CVX), Merck (MRK) and Amgen (AMGN) topping the list of Dow leaders.
Chevron is even trading near an all-time high. The same goes for rival (and former Dow component) Exxon Mobil (XOM). Big Pharma leader Eli Lilly (LLY) and health insurers Cigna (CI) and Humana (HUM) are also at record highs.
It’s not just energy and health care stocks that are posting strong gains this year. Several consumer staple businesses — businesses that sell food and beverages — are also booming. McDonald’s (MCD), Pepsi (PEP) and cereal makers General Mills (GIS) and Post (POST) have recently hit record highs.
According to new research by James Bisbee of New York University, Nicolò Fraccaroli of Brown University and Andreas Kern of Georgetown University, there is clearly a gender bias in Federal Reserve Congressional hearings.
Scholars analyzed every congressional hearing attended by the Federal Reserve Chairman from 2001 to 2020 and found that lawmakers who interacted with both Yellen and at least one other male Fed Chairman during that period interrupted Yellen more and interacted with her using more aggressive tones. .
“Our findings underscore the important role of societal biases that spill over into seemingly unrelated policy areas,” they wrote.
The daughter effect: Interestingly, the researchers found that the increase in hostility experienced by Yellen was absent among legislators with daughters.
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