Many people bake bread. But the overheated job market is finally calming down, which could mean either a welcome return to normalcy or the beginning of a slide into recession.
The outcome could change in the 2024 presidential election.
Biden is essentially playing a game of chicken with the economic cycle. One acceptable scenario for him would be for the economy to end a mild recession in 2023, with a recovery well underway by the time the 2024 election rolls around. Now that's unlikely to happen. So Biden will have to hope there is no downturn at all over the next 15 months. Of course, he can't really control it.
The Fed can do that to some extent, but it won't necessarily side with Biden.
The Fed has already raised interest rates by 5 percentage points since last March, and could raise rates a little more to ensure inflation returns to the 2% range the Fed wants.
It is believed that such rapid monetary tightening will put pressure on employment and, in some cases, result in fewer jobs. That hasn't happened yet. So there's probably a 50-50 chance that the Fed will raise interest rates a bit more by the end of the year.
If Biden were Donald Trump, he would definitely blame the Fed for trying to chill the labor market and economic growth.
But Mr. Biden has been the business community's chief cheerleader, criss-crossing the country on a kind of honour-call tour touting new factories, boasting about job growth and reminding voters that inflation is falling. ing.
Recruitment slowdown
Economists had been expecting the breakneck pace of hiring to slow for some time. It looks like that is finally happening.
Employers created 209,000 new jobs in June, which was significantly lower than the monthly average of 316,000 new jobs over the past year. But there's nothing wrong with that slowdown. In a normal economy, 209,000 new jobs per month would be a healthy number. Even if average monthly job creation is just 100,000, a healthy economy can still be on track.
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But we weren't in a normal economy. The 2020 coronavirus pandemic caused massive distortions that are still evident three years later. Employment fell sharply in April 2020 as companies braced for a deep recession. However, employment quickly recovered thanks to massive fiscal and monetary stimulus. Total employment hit a record high in June 2022, and job creation continued at an almost unprecedented pace until last month.
June's numbers were the lowest since December 2020, when new variants of the coronavirus spooked businesses and caused a temporary drop in employment. Since Joe Biden took office in 2021, he has overseen the largest jobs boom in modern history. So what happens next?
Economists don't know. Many have been predicting a sharp slowdown in employment in recent months due to the recession. They have been consistently wrong. Perhaps it's because working from home, supply chain innovation, technological innovation, and the combination of all those stimulus measures have changed the economy in fundamental ways they haven't considered. Or perhaps the timing is simply wrong, and the recession will take longer to materialize than conventional forecasting models predict.
'We are structurally understaffed.”
This difference is crucial for Biden.
The bull case for him is that fundamental trends will foster a strong labor market for the foreseeable future.
Rick Rieder, head of global allocation investments at BlackRock, argues that many companies are “structurally understaffed” due in part to an aging population and the retirement of baby boomers. do.
Other analysts believe that companies are “hoarding” labor because it has become harder to find the right people in recent years. Even in the event of a recession, these trends could keep unemployment low and ease the usual pain of layoffs and lost income.
The bearish case for Biden is that the stimulus and the effects of the pandemic have simply delayed an inevitable recession. For example, during the pandemic, consumers accumulated trillions of dollars in “excess savings” because they couldn't spend on travel, dining out, and other activities. That excess savings allowed consumers to continue spending even as real incomes declined due to rising inflation. But that is likely to be gone by the end of the year, leaving a hole in the economy in 2024 when the election heats up.
Oxford Economics recently changed its forecast for a gradual recession starting in the third quarter of 2023 (currently) to starting in the fourth quarter of 2023. However, the forecasting company once again reserves the right to change its outlook.
“Our confidence that a recession will begin this year is waning,” the company said in a June 30 analysis. “While the economy is more resilient than initially thought, the pandemic has not overridden the business cycle and a recession will occur at some point. Mr. Biden would probably be very happy if he could extend that to 15 or 20 months.
Rick Newman is a senior columnist in the United States. Yahoo Finance. Follow him on Twitter @rickjnewman
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