Economic Report: Here’s why strong U.S. job gains might lead to recession

by | Dec 2, 2022 | Stock Market

Normally the U.S. adding 200,000 new jobs a month would be cause for celebration, but now the speedy pace of hiring might actually raise the odds of recession. Here’s what is going on. Strong employment gains are exacerbating an acute labor market shortage. The result is a rapid rise in wages that threatens to prolong the worst U.S. inflation in four decades.

To bring inflation down, the Federal Reserve is swiftly raising interest rates to slow the economy. Higher borrowing costs depress consumer spending and business investment and, just as important, reduce the demand for labor. Yet unless the labor market cools off considerably faster, the Fed is likely to raise interest rates even higher than expected and potentially trigger a recession. Indeed, most Wall Street
economists predict a recession in 2023. Until not long ago, the Fed was banking on an increase in the number of people looking for work to ease the labor shortage. The expectation was that many workers who dropped out of the labor force during the pandemic would return For while that’s exactly what happened, but the size of the labor force has actually shrunk since August. Now it’s slightly below pre-pandemic levels again almost three years after the onset of the coronavirus. There were 164.5 million people in the labor force in November. Had the pandemic never happened, the labor force likely would have added another 3.6 million people from 2020 through 2022, based the average annual increase from 2012 to 2019. Where have all these people gone? Federal Reserve Chairman Jerome Powell on Wednesday estimated about 2 million people retired and haven’t come back. Some are still worried about the coronavirus …

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