Robust job growth has been one of the few bright spots for Biden on a darkening economic horizon, and government officials have repeatedly touted the numbers as evidence of the economy’s underlying strength. However, the slowdown in the labor market is essential to taming consumer prices, which are rising faster than most Americans have experienced in a lifetime.
“They’re in a bind because they need inflation to come down, and inflation probably won’t come down until the job market weakens significantly,” said Andy Laperriere, Piper Sandler’s head of US policy. “Whether that number looks good, bad, or somewhere in the middle, it needs to get worse for the Fed to feel like it’s making progress on inflation and stop tightening.”
Increased inflation poses risks to any economic outcome. A sharp drop in hiring would likely mean slower price spikes but stoke fears of an economic slump, while continued strong demand for labor would prompt the Fed to hike rates even more in a bid to curb inflation. That would increase the risk of a downturn that could be politically devastating for Biden and the Democrats.
Atlanta Fed President Raphael Bostic, in an appearance on CNBC, cited the latest data as a sign of continued momentum in the job market, arguing that it means the Fed will proceed with another outsized rate hike later this month and “not.” much of this could see lasting damage to the economy.”
The unemployment rate remained at 3.6 percent, near modern-era lows. Few people are losing their jobs, although the percentage of people in work has fallen to 62.2 percent, still stubbornly below the pre-pandemic level of 63.4 percent.
“The job market is cooling, but it’s still hot,” said Daniel Zhao, senior economist at Glassdoor.
White House officials have been saying for months that job growth would soon slow from the rapid pace seen earlier this year, when jobs were averaging about 600,000 a month.
“This was the fastest and strongest job recovery in American history,” Biden said in a statement Friday. “Of course, having added a record number of new jobs and reaching historically low unemployment levels, additional job growth from this strong position will be slower. That’s not a bad thing, because our economy should be poised for steady growth for years to come.”
A senior White House official said it’s likely that next year’s job growth will approach that of 2019, when monthly gains averaged about 160,000 and the unemployment rate was similarly low.
“As we transition to a more sustained pace of job growth, we’re likely to see fewer record job creation numbers, but that’s not a cause for concern,” the official said on a call with reporters on Thursday. “It will be a sign that we are successfully entering the next phase of the recovery.”
Other recent economic data points to a flattening job market, including a modest increase in average hourly wages and a drop in job vacancies.
The senior official also said the administration remains optimistic that the Fed can stem inflation without plunging the economy into recession, noting continued strength in fiscal balance sheets and the labor market, which should support economic activity.
For its part, the Fed is focused on acting quickly to slow the economy before households and businesses expect inflation to persist indefinitely, a key psychological factor behind rising prices that makes them harder to contain.
“The faster they do that, the less unemployment needs to rise,” said Joseph Gagnon, a senior fellow at the Peterson Institute for International Economics and a former central bank official.
He said the Fed doesn’t seem to think it’s a foregone conclusion that it will have to use widespread job losses and wage cuts as a bludgeon to bludgeon inflation, even though Fed officials forecast unemployment will rise to at least 4 percent going up few years. The key is the extent to which price spikes will subside on their own as supply chains unravel and food and energy prices halt their meteoric rise.
Even without the Fed’s action, the private sector has regained jobs lost during the pandemic, so a slowdown would be expected, said Julia Pollak, chief economist at ZipRecruiter.
“There was an unsustainable level of brain drain in the labor market,” Pollak said. “It puts a huge strain on companies. They had to spend a lot more time hiring and training than they can possibly afford.”
A return to monthly job growth of 200,000 would still be a big number, she said, adding that while some industries, like mortgages, may start cutting hiring, others, like hospitality and leisure, will continue to add jobs will.