Federal Reserve chair Jerome Powell (AP Photo/Manuel Balce Ceneta)
It's understandable if you're completely confused about the job market and economy. The reason why you feel in the dark is because the reasons may seem counterintuitive. The Federal Reserve Bank, the entity controlling the United States’ money supply, has to make the economy worse before it can get better.
Fed chair Jerome Powell openly admits that the economy needs to be cooled down to fight inflation. Bear in mind, Powell and treasury secretary Janet Yellen missed the mark, claiming inflation was only “transitory” and would subside after a while. It didn't ebb, and has hit 40-year record highs.
The U.S. Government Messed Up
The bigger it gets, the harder it falls. One of the Fed’s only tools now is to hike interest rates, which makes buying a home with a mortgage, using credit cards or seeking loans to start a business much more expensive. The result is that people will opt out of purchasing homes, cut down on spending, forgo starting a business and companies will lay off workers and enact hiring freezes.
The government flooding the economy with trillions of dollars, while not taking immediate action to cut off inflation before it raged, left the Fed with few other choices that brought down the economy, causing high unemployment. The cold theory is that you won't spend money if you don't have a job, and the economy will contract.
The argument against this theory is that employment is still high and businesses can’t find enough workers. There are over 11 million jobs available and two roles for each one individual seeking a role. The consumer will keep spending in a tight job market, saving the day. However, recent layoff announcements are pulling away the foundation from a house of cards.
The widely reported “two jobs open for every one person seeking a new role” isn’t exactly accurate. People assume that there is a direct match between open roles and job hunters who either possess the requisite skills or are interested in the type of positions available. If you are a tax accountant looking for a new role, having two bartender jobs available isn’t very helpful.
Another fallacy is saying that it's a “hot” job market. Not every sector is in demand. If you are a software engineer, you’ll be sought after. On the other end of the spectrum, waiters, bartenders, warehouse workers and other frontline workers are desperately needed. However, many of these folks don’t want these types of jobs and plan to pivot out of their respective industries. They desire roles that aren't back-breaking and don’t require being on your feet all day and dealing with abusive customers. This is one of the reasons why the jobs are still open—people don’t want them.
The Start Of Layoffs Was With Startups
At first, layoffs came for the venture-backed startups and smaller tech companies that were heavily funded, but lacked meaningful revenue and had the absence of profits. Then, the crypto industry got crushed. Not only were there layoffs, but platforms were closed, funds were made unavailable to customers and bankruptcies were filed. Now, the downsizings and hiring freezes are coming for the big-brand corporations.
Wells Fargo and JPMorgan cut mortgage-related personnel due to the foreseeable slowdown in home purchases, as the monthly mortgage payments and interest are too much of a burden for families to carry. Microsoft, Twitter, Apple, Netflix, Ford Motors and many other major corporations are laying off workers or freezing headcount.
As the large companies let go of workers, allow attrition without replacement and put into effect hiring freezes, the actions will reverberate throughout the business sectors. It's a domino effect. Each company, fearing a downturn, will cut budgets. This is basically the Fed’s plan. When the business community cools down, so should inflation. The worker needs to be sacrificed for the system to be balanced again.
The Good Times Are Turning Bad
Last week, the number of Americans applying for unemployment benefits rose to the highest level in more than eight months. It’s a warning sign foreshadowing what’s to come. Jobless claims for the week ending July 15 increased to 251,000, representing the most significant spike since the pandemic time period of November 13 last year, when 265,000 Americans applied for benefits. The Department of Labor also pointed out that employers advertised fewer jobs in May, another signal of a declining job market, which the Fed is hoping for.
What Is A Recession?
A recent Bloomberg survey of economists pointed to the increased possibility of a recession. A recession can be loosely defined as a sustained period of weak or negative growth in real gross domestic product, along with a significant rise in the unemployment rate, a drop in the stock and housing markets, households losing purchasing power and, as a consequence, consumers losing confidence. The U.S. is, unfortunately, exhibiting all of these signs, including the recent consumer price index report.
A Bright Spot?
There could be a bright spot. You may have noticed, if you are going on a vacation, out to eat, shopping at a mall or attending an event, it's mobbed with people. After two-plus years of dealing with a pandemic and largely staying indoors, they are out revenge shopping and traveling. These actions could keep the economy humming. However, it may inadvertently enhance inflation.
Next week, the Fed is anticipated to hike interest rates for the fourth time in 2022. Its expectation is that unemployment will slowly rise from around 3.6% to 4.1% by 2024.
Fend For Yourself
In these challenging times, people must also take personal actions to safeguard their jobs and finances. Go into the office to be seen and make yourself indispensable, so they will need to keep you. Stay in close touch with your network to compare notes on what’s happening and seek out job leads. Find folks who can give you an entrée into companies that are doing well.
Update your résumé and LinkedIn profile. Find recruiters who specialize in your space who can keep an eye open for opportunities. Save your money. Don’t take too much risk with your investments in stocks or cryptos. Lastly, avoid adjustable interest rate debt that could quickly escalate.
