The hiring frenzy that has gripped developed economies since the pandemic is starting to ease, as employers worry about rising costs, falling demand and a darkening economic outlook.
On both sides of the Atlantic, unemployment rates remain low. But data published in the past week suggest vacancies are falling from historically high levels and companies are becoming more cautious about taking on staff.
If it persists, this combination is good news for central bankers, who are keen to cool wage growth in their battle with high inflation, without triggering a surge in unemployment.
“In all advanced economies, we are at peak labour market tightness,” said Simon Macadam at the consultancy Capital Economics. The US jobs market in particular shows the strongest signs of “coming off the boil”, he said.
Central banks on both sides of the Atlantic are engaged in the most aggressive rate raising cycle since the early 1980s as they try to combat soaring prices. Officials are concerned that a scramble to attract workers could trigger a 1970s-style wage-price spiral, where inflation lingers for years to come.
In the US, data released last week showed openings fell at their sharpest rate since the start of the pandemic. In the eurozone, the closely watched purchasing managers’ index surveys for September showed job creation had dropped to an 18-month low across the bloc, with employment in services no longer growing. In the UK, vacancy numbers have dropped from record highs and surveys suggest hiring activity is slowing despite staff shortages.
Central bankers face a delicate balancing act. Some economists argue that the pace and scale of the monetary tightening risks leaving millions without work, notably in the US where the Federal Reserve has increased borrowing costs by 0.75 percentage points at each of its last three policy meetings.
“Inflation is a hardship, especially for those living pay cheque to pay cheque, but no pay cheque is a disaster for families,” said Claudia Sahm, founder of Sahm Consulting and former Federal Reserve economist, adding that it was time for the Fed to be patient. “The housing market is slowing markedly now. We will see that in the broader economy and inflation next year.”
US data published on Friday showed the economy added 263,000 positions in September — half the pace of jobs growth seen over the course of 2021, but still well above pre-pandemic averages. Meanwhile unemployment fell to its pre-pandemic low for an unwelcome reason — a renewed rise in the number of people choosing not to job-hunt — suggesting labour shortages will persist, even with fewer vacancies.
Chris Waller, a Federal Reserve governor, said last week that a payrolls increase in the region of 260,000 would show “that the labour market is slowing a bit but is still quite tight”, supporting his view that it may be possible to reduce vacancies — and wage pressures — without big lay-offs.
“We currently do not face a trade-off between our employment objective and our inflation objective, so monetary policy can and must be used aggressively to bring down inflation,” he said.
Data due in the UK this week is expected to paint a similar picture of a slowing, but still tight, jobs market in which many older workers are standing on the sidelines. Dave Ramsden, Bank of England deputy governor, has described this rise in inactivity among older workers as “one of the most significant legacies of the pandemic”.
But economists are revising up their 2023 unemployment forecasts for most countries.
In the US, the annual unemployment rate next year is forecast at 4.2 per cent, up from the 3.5 per cent that was forecast in February, according to Consensus Economics, a company that averages leading private forecasters.
“It’s unlikely that the Fed can lower job openings without raising the unemployment rate against the backdrop of high inflation, fading profit margins and interest rates,” said Richard Flynn, managing director at the brokerage Charles Schwab.
Economists have revised up their German 2023 unemployment forecast by 0.6 percentage points to 5.5 per cent over the same period. This contributed to pushing the eurozone rate above 7 per cent in September’s forecast, up from below 6.8 per cent only a few months before.
In the UK, the 2023 unemployment rate was being revised to 4.5 per cent, up from 4.1 forecast in February, even before the “mini” Budget sent interest rates expectations up, leading many economists to predict a deeper recession.
Unemployment rate expectations for 2023 are now higher than they were a few months ago also in New Zealand, Australia and Canada as interest rates rise and recessionary risks increases. While showing smaller upticks than in other countries, the unemployment rates forecasts are revised up for all the markets tracked by Consensus Economics, including South Korea, Hong Kong and Japan.