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Making sense of a confusing (but surprisingly strong) job market

Russell Price, Chief Economist – Ameriprise Financial
April 17, 2023

Layoff announcements have surged over the past several months, but they have yet to materialize in the form of broadly weaker job market conditions.

The U.S. economy generated 1.03 million net new jobs over the first three months of the year, and in January, the unemployment rate reached a 60+ year low of 3.4%, according to the Labor Department.

Let’s face it: The job market is not behaving the way it has historically — especially considering that the economy is supposedly so close to a recession.

So, let’s look at some of the most common questions regarding employment:

Why is the job market still so tight?

In the U.S. economy — and other major economies around the world — a growing number of people are reaching retirement age and exiting the job market. Younger generations are backfilling those positions. However, they have generally been smaller in number, thus slowly tightening the job market over time. Given demographics, we believe such trends are likely to continue for some time.

Source: FactSet, as of March 2023


Have all the workers that left the job market during the pandemic returned?

That’s a tough question as it concerns individual motivations and actions. Here’s what we do know, according to Labor Department data:

  • The job market was tight before the pandemic arrived, as indicated by the February 2020 unemployment rate of 3.5%.
  • There were 2.1 million more people employed in the U.S. in March 2023 relative to February 2020.
  • Labor force participation rates for older age groups remain below their pre-pandemic levels. Participation rates for older age segments had been at record highs, but these workers have been slow to return post-pandemic, particularly given their greater health risks. 


Is the Fed trying to increase the unemployment rate?

Over the last year, Federal Reserve officials have increased their main overnight lending rate by 5.0%. Higher interest rates are meant to slow the economy, thus reducing inflation pressures. Higher unemployment is an unfortunate consequence, but the negative effect of inflation on consumer spending power is even worse.

Additionally, through February, most of the remaining inflation pressures seen in the economy are in the services sector, where labor costs are the primary influence on prices. Most indicators show wage inflation across the economy to be easing, but wage gains are still strong, and they typically lag broader inflation measures.

Source: FactSet, as of March 2023


Given the current environment, what’s your unemployment rate forecast?

We forecast the unemployment rate to rise moderately in the quarters ahead but likely remain below 5.0%. 


What might happen to the job market if a recession materializes?

The odds of a recession occurring at some point over the next several quarters recently increased due to the emergence of banking sector stress. Although we believe the banking system remains sound, lenders are likely to be more judicious with their lending over the intermediate term, thus hurting growth prospects modestly.

Should the U.S. economy slip into recession, however, we believe it would be relatively shallow.  Additionally, many businesses, especially mid-sized and smaller firms, appear to be holding on to their workers more tightly than usual given the labor market’s ongoing tightness. As such, we believe the unemployment rate would likely remain under 5.0% even if the economy enters a downturn.


There seems to be a significant increase in layoff announcements. Why aren’t these reflected in the job market data?

Source: FactSet, as of March 2023


New layoff announcements have indeed jumped, averaging 74,800 from December 2022 to February 2023. That’s compared to 17,800 layoff notices in the same three-month period a year ago, according to Challenger, Gray & Christmas. New claims for unemployment insurance, however, remain at remarkably low levels and net new hiring has been strong, as evidenced by the Labor Department’s monthly jobs report.


Generally, we believe laid-off workers are finding it fairly easy to find another position given ongoing demand for workers. However, this dynamic could steadily weaken over the months and quarters ahead.


Recent job market strength has been somewhat of an unwelcome dilemma for Fed officials and market participants. These groups hope that easing labor market conditions may lessen wage pressures and, thus, decrease inflation.


Reach out to your Ameriprise financial advisor if your job situation changes

Whether it’s a promotion at your present workplace or a new position elsewhere, your Ameriprise financial advisor can help you evaluate how changes to your employment can affect your overall financial situation. They can account for income changes and provide ideas on how to potentially optimize your compensation package to help reach your financial goals.

The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Ameriprise Financial associates or affiliates. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances.
Some of the opinions, conclusions and forward-looking statements are based on an analysis of information compiled from third-party sources.  This information has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Ameriprise Financial. It is given for informational purposes only and is not a solicitation to buy or sell the securities or strategies mentioned.
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