Labor data suggests a ‘soft landing’ could be imminent, say economists
Luis Alvarez | digital vision | Getty Images
The US economy edged closer to a “soft landing” after a new batch of labor data, economists said.
Soft lying is a good thing. It would mean that the Federal Reserve has accomplished the difficult task of stopping inflation without bringing back a recession.
Job openings, a barometer of employer demand for workers, fell 617,000 to 8.7 million in October, the lowest level since March 2021, the U.S. Labor Department reported Tuesday in its monthly Job Openings and Labor Turnover Survey.
“Another key ingredient of a soft landing is falling into place,” said Jason Furman, a professor at Harvard University and former chairman of the White House Council of Economic Advisers during the Obama administration. write about job openings.
Why lying soft is like ‘Goldilocks’ porridge
A steamed bowl of oatmeal porridge, made with Irish oats, wheat berries and barley.
Jon Lovette | Photographer’s Choice Rf | Getty Images
On the face of it, a weak job market may sound like bad news—but that trend is by design.
The Fed began sharply raising borrowing costs in early 2022 to tame high inflation. By raising interest rates to the highest level since 2001, the central bank has aimed to cool the economy and the labor market.
The Fed has been walking a tightrope: bringing inflation down from four-decade highs without causing an economic recession. The opposite – a hard landing – would mean decline.
Soft landings are like “Goldilocks porridge” for central bankers,” Brookings Institution economists wrote recently. In this scenario, the economy is “just right—neither too hot (inflation) nor too cold (in recession),” they said.
“This is the best possible outcome,” said Julia Pollak, chief economist at ZipRecruiter. “And I think the chances are [for it] growing higher and higher all the time. We are very, very close.”
There is no official definition for a soft landing. According to conventional wisdom, it has only been accomplished once — in 1994-95 — in the history of the Fed’s 11 monetary policy tightening cycles dating back to 1965, the American Economic Association wrote.
How the labor market is responding
The latest jobs data added to the encouraging news of a soft landing, economists said.
A major pullback in job openings coincided with weakness elsewhere. Stops and hires held steady around their pre-pandemic levels. Layoffs are still low and are about 17% below their pre-pandemic baseline, suggesting that employers want to keep up with workers, Pollak said.
Despite the large monthly decline, job openings are still 25% above their February 2020 level, she said.
The ratio of job openings to unemployed workers fell to 1.3 in October, down from a pandemic high of 2.0 and near the pre-pandemic rate of 1.2.
“Here [JOLTS] The report should bring some holiday cheer as the probability of a soft landing continues to rise,” wrote Nick Bunker, director of economic research at the Indeed Hiring Lab, on Tuesday.
“The current state of the labor market indicates that no further recalibration is necessary [it] back to balance,” he said, “It’s already there.”
In short: The labor market has cooled while layoffs have not increased and workers still have job security and good prospects, economists said.
“It’s still a favorable labor market,” Pollak said.
However, workers have lost leverage compared to 2021 and 2022. Large pay increases are less common, and they are not signing bonuses. While there are still plenty of job opportunities, they are harder to come by, Pollak said. Outside of industries like health care, where there is a severe labor shortage, the opportunities are “less attractive,” she said.
Don’t miss these stories from CNBC PRO: