The economy exceeded its speed limit when it sprang back from the steep, brief pandemic recession of 2020, but it has been slowing since under the weight of Fed rate increases. Last week the Bureau of Economic Analysis reported that the nation’s gross domestic income grew at an annual rate of just 0.5 percent in the second quarter. That followed annual rates of decline of 1.8 percent in the first quarter and 3.3 percent in the fourth quarter of last year. The gross domestic product, which conceptually should add up to the same amount as gross domestic income, has risen each of those quarters, but averaging out the two data series gives the picture of an economy that’s scarcely expanding.
In comparison the job market has been, as I said, relatively strong. On Friday the Bureau of Labor Statistics reported that payrolls grew by 187,000 jobs in August. The unemployment rate jumped to 3.8 percent from 3.5 percent in July, but that’s still below average and was explained by an unusually large rise in the number of people looking for work.
Pascal Michaillat, an economist at the University of California, Santa Cruz, likes to measure the tightness of the job market by comparing the number of job vacancies with the number of unemployed people. The labor market is efficient, he contends, when the numbers are equal — that is, when the ratio of vacancies to unemployed is exactly 1. The ratio fell to 1.4 in August from 1.6 in July, he wrote last week. To him, that means the labor market has loosened but remains too tight: “An excessive amount of labor is devoted to recruiting and hiring instead of producing,” he wrote.
One scenario is that the labor market remains tight for longer than it would otherwise, but eventually cracks. It’s common for the unemployment rate to be a lagging indicator. In the long recession that began in December 2007, the unemployment rate remained right around 5 percent through April 2008, and didn’t peak, at 10 percent, until four months after the recession had ended.
In fact, there are already some signs of cracking in the labor market. Sifting through the August jobs report, David Rosenberg, the bearish president of Toronto-based Rosenberg Research, noted that employment actually fell slightly in the cohort of 25- to 54-year-olds — the “breadwinners,” he called them. There was also a continued decline in full-time jobs, which has been masked by strong growth in part-time jobs.
