UNC economist: Today’s jobs report signals a recession is coming in 2023

CHAPEL HILL – Job openings remain high across the Triangle and across the United States, which is leading to better-than-expected hiring across the U.S. economy. But there’s also bad news in this positive: The Federal Reserve will likely keep raising interest rates, which means a recession, says a UNC-Chapel Hill economist.

“There’s still strong demand for employment,” said Dr. Gerald Cohen, the chief economist at the Kenan Institute for Private Enterprise at the University of North Carolina at Chapel Hill.  “There is continued demand for skilled labor,” Cohen noted, across sectors including healthcare, finance, manufacturing, and more.

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That’s leading to more jobs in the economy, said Cohen.  The latest data from the Bureau of Labor Statistics found that 233,000 jobs were added to the economy in December 2022.

“The demand for labor is so strong, despite the fact that everybody is talking about a recession, and companies are talking about a recession,” said Cohen.  Still, though, employers are sharing their own intentions to continue to hire workers, as in the Triangle, 49 of 50 employers tracked in the weekly WRAL TechWire Jobs Report were continuing to hire for open roles at the beginning of the year.

“The unemployment rate is back down to a 50-year low of 3.5%,” said Cohen.  And while layoffs in the technology field continues to lead the news, said Cohen, “interestingly, despite the views of all of this, tech employment continues to grow.”

In addition, average hourly earnings increased in December, but by a lower-than-expected amount.

“All of those are good news,” said Cohen.  Still, there is some bad news that can be found in the most recent jobs report.

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Jobs report signaling a recession is on the way

“The thing that worries me most is the downturn in temporary help jobs … The fifth consecutive month of declines.”

This tends to be a leading indicator, said Cohen, which could mean that there’s a recession coming.

There are also other signs that a recession is on the way.

“To push on a negative note, last month, I discussed how my favorite economic indicator,” said Cohen.  “Has turned negative, and that to me is an indicator that a recession is on the horizon.”

“We are going to have the recession,” said Cohen.  “The reason we are going to have a recession is that the Fed has raised interest rates substantially.”

There will be an impact on employment, said Cohen.  “But ultimately, we will end up in a recession.”

Even if one recession would come, said Cohen, the Triangle is continued to expect to grow, according to the research conducted by the Kenan Institute.

“But one of our worries, my biggest concern, is that all of the companies who have said that they will move to the region,” said Cohen.  “Would not happen.”

As long as companies continue to fulfill their promises to create jobs in the region, growth will continue in the region, said Cohen.

And the Raleigh area is among the fastest growing metropolitan areas in the country, with projections to remain fastest-growing through the end of the decade, according to Ted Abernathy, the managing partner of Economic Leadership, LLC, who spoke in Raleigh on Wednesday afternoon.

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If recession comes, it will be mild

But, predicted Cohen, any recession that does come will be mild, as household balance sheets are somewhat healthy.

“Households have over $2 trillion in excess savings, which should cushion the downturn,” said Cohen.

Still, that household wealth is largely concentrated in the top 50% of households.  The other 50%, however, tends to fare worse during recessions, said Cohen.

“We’re seeing fairly healthy debt levels,” said Cohen.  Unlike the lead up to the Global Recession and the housing crisis in the mid-2000s, there’s now a much healthier debt-to-income ratio, said Cohen.

“We’re not seeing very high levels of debt, relative to incomes, so I believe that is one of the reasons that we will have a mild downturn.”

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Inflation and interest rates

And though some economists have been concerned about a wage-price spiral, inflation expectations remain muted, and Cohen said it appears that wage growth is decelerating, which could lead to less consumption and consumer spending.

Still, though, Cohen noted that the Federal Reserve has been “hampered by high inflation.”  Core inflation remains above 2%, which is why the Fed will likely continue to raise interest rates, said Cohen.

“We’re seeing a shift in dynamics, service inflation has accelerated,” said Cohen, “While goods inflation is coming down.”

It’s harder to slow down service inflation, said Cohen.  “The dynamics take a lot longer.”

The post UNC economist: Today’s jobs report signals a recession is coming in 2023 first appeared on WRAL TechWire.

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