The Federal Reserve will meet on Tuesday and Wednesday to discuss interest rate hikes designed to cool the economy just enough to bring high inflation under control, but not so much that the economy enters a recession.
The job market, which has been extremely strong throughout the recovery from the pandemic and has served as a bulwark against a sharp, broad-based economic reversal, is a key figure in that equation. The economy added nearly 400,000 new jobs per month from April to June. Though that figure is high, it is not as high as it was earlier in the recovery. Meanwhile, unemployment claims have increased by 50% since reaching an all-time low in March.
"There's no doubt the labor market is slowing," Jason Furman, senior fellow at the Peterson Institute for International Economics, said.
According to Furman, the Fed is attempting to cool labor demand in order to keep wage inflation in check, so a slowdown in job creation is acceptable.
"The tricky part is determining whether it's slowing from an unusually rapid 400,000 jobs per month to something like 150,000, which would be fine, or whether it's actually going to reverse and shed jobs, which would be bad," Furman said.
Worker demand is no longer as high as it was six to nine months ago. According to Julia Pollak, chief economist at ZipRecruiter, employers are posting fewer jobs and offering fewer signing bonuses.
Meanwhile, according to John Leer, chief economist at polling firm Morning Consult, workers' fear of job loss is increasing, and fewer workers say they want to change jobs.
"Given the economic uncertainty, people are saying they'd rather keep their jobs than try to jump ship," he said.
Bottom line: Things were great; they're getting a little worse, but they're still not bad. At least not yet. The issue, according to Joseph Brusuelas, chief economist at consulting firm RSM, is that everything could change very quickly.
"When the economy goes into a slump, it doesn't turn like a big, slow battleship," he said. "It has a tendency to fall off a cliff."
And by the time the economy is losing jobs, a recession is almost certainly underway.