The US job market growth remained robust in September, although recession fears are now on the rise. According to the Bureau of Labor Statistics, 263,000 new jobs were created last month, and the unemployment rate fell to 3.5%. However, the US and other economies around the world are currently experiencing numerous problems, from struggling to contain the ongoing effects of the COVID-19 pandemic to surging inflation that is now affecting many countries around the world. And with Russia’s unjust war in Ukraine also disrupting the global economy, it remains to be seen whether a recession can be avoided.
According to CNN Business analyst Martha White, while job market growth and low unemployment are normally considered good news, the calculus changes drastically during a crisis. Issues such as above-average wage growth and low labor force participation rates can become increasingly problematic when combined with labor market growth. With numerous other issues also impacting the US economy, analysts are worried that the Federal Reserve (Fed) could push the US economy into a recession next year, stopping further job growth. According to CNN Business Perspectives analyst Gad Levanon, the only option left to the Fed is to engineer a recession by continuing to raise interest rates.
Is the job market growth actually alarming to US economists, or is the US economy coping better than expected? The answer might be more complicated than it would seem.
Job Market Growth: What It Really Means
According to Reuters, US companies hired more people in September than initially expected, and the unemployment rate in the country fell to 3.5%. These facts seem to indicate that the labor market in the US is currently tight, and that the Fed may continue to practice an aggressive monetary policy in the near future. The 0.2 point decline in the unemployment rate, from the previous month’s 3.7%, might be the result of workers leaving their jobs. However, according to the new Labor Department report for September, fewer people in the US continued to work part-time last month, mostly because of financial reasons. The job market remained robust regardless of Fed’s decisions and actions.
In normal times, a robust labor market is a positive economic sign, pointing to a similarly robust economy and an even brighter future. However, according to Martha White, the opposite seems to be true during an economic crisis. “What would normally be good news suddenly looks bad,” she writes, quoting Bill Northey, senior investment director at US Bank Wealth Management. According to Northey, the US economy is now stuck in an odd dynamic, that could prompt the Fed to intervene even more aggressively. After all, the Fed hopes to keep both the job market and the US economy in balance.
However, this may be easier said than done, considering the discrepancy between the state of the US economy (which continues to be plagued by inflation) and the continued growth of the labor market.
Why the Fed Will Likely Continue to Fighting Inflation
One of the biggest problems facing the global economy right now is undoubtedly inflation. Like numerous other countries around the world, the US was also heavily impacted by the lingering effects of the COVID-19 pandemic, which is now believed to be responsible for starting the current crisis. However, according to Stanford economist John Taylor, inflation is likely to increase if the Fed sets the interest rate too low or if the money supply increases too quickly. The economist believes that the current rate of inflation is “very unusual,” especially considering earlier increases in the US.
Taylor further explains that this issue seems to have occurred quickly and strongly, as the inflation rate has increased from 1.4% between January 2020 and January 2021 to 9.1% between June 2021 and June 2022. According to the economist, the local economy has not seen a similar growth rate since the 1960s and 1970s. Even then, the growth rate was much slower than today, and it took more than 12 years for inflation to rise as much as it did now. The main reason for this problem is the today’s monetary policy, a factor that makes Taylor agree with other economists, and stating that the Fed will continue to increase the interest rates.
The economist does not rule out the possibility that the COVID-19 pandemic has played an important role in the recent rise in inflation. He also mentioned other contributing factors, such as global supply chain issues and Russia’s unjust war in Ukraine. Despite the recent job market growth, these issues are likely to remain problematic for the economy in the near future.
