This Month in Labor: November 2022

It’s been a tough year for the Federal Reserve.

Despite six(!) rate hikes in 2022, the highest inflation in 40 years just won’t take a hint. (Note: The last time rates were hiked this frequently was in 2005–the thick of the U.S. housing boom that led to the Great Recession.)

Unfortunately for the Fed, employers, and the current administration, the incredibly tight labor market fueling inflation has so far appeared quite happy to remain the way it is.

An unstoppable trend?

The labor market has been among the key focuses of the Federal Reserve as it looks to combat inflationary pressures. Yet despite their efforts, the total number of job openings in the U.S. is now at a record high of 7.14 million, which means there are more jobs available than there are unemployed workers for the first time in history.

According to the JOLTS report released November 1, job openings in September increased by 10.7 million, with the transportation and warehousing sector claiming the third highest spot in job creation (+111,000).  Plus, average hourly earnings for workers in the sector edged up 3.2 percent, outpacing the overall 2.8 percent gain in average hourly earnings for all private sector workers.

If the above trends persist, employers will have to compete for labor with even higher wages which could (sorry, Fed) further stoke inflation.

Inflation pressure holdout

Compare this stubborn labor trend with earlier inflation drivers.

  • The semiconductor shortage, which walloped global manufacturing, has been easing considerably thanks in large part to softening demand for chip-hungry products. General Motors, for example, has whittled down 75% of the unfinished autos it had sitting around in June due to the lack of chips.
  • Prices for raw materials like aluminum, copper, and steel rebar have all dropped more than 20% since the beginning of 2022. This a great sign for companies like glass and protective coatings maker PPG Industries. After absorbing more than $1.9 billion of raw material inflation since 2021, its CFO Vincent Morales said the company plans to start cutting its “safety stock.”
  • The cost of ocean freight is down too. Way down. According to data released by Drewry Shipping Consultants, sending a 40-foot container from Shanghai to Los Angeles currently costs $2,412. In Q3 of 2021, the cost peaked at $12,424.

So far, labor market pressures haven’t followed suit. So when will they?

Amid predictions laid waste by the pandemic, labor forecasters are understandably reluctant to issue definitive proclamations. That doesn’t mean, of course, there are no opinions on the matter.

A trend that points to a bigger problem…

Bloomberg columnist Thomas Black, for example, recently opined that we shouldn’t expect labor scarcity to be corrected anytime soon. While he acknowledges that an economy cooled by rate hikes should bring labor participation rates back to pre-pandemic levels in the short term, he insists the problem is systemic.

“The shortage of skilled workers was acute before the pandemic,” he argued. “Demographics show that improving our home-grown workforce won’t be enough [going forward].”  He maintains the only solution for the U.S. is for politicians to hammer out an immigration deal that allows for a sensible flow of foreign workers to come in and fill the gap.

Unfortunately, the current climate in Washington doesn’t bode well for progress on that front anytime soon.

…or one a troubled economy could reverse?

Other signs point to an impending rebalance occurring thanks to economic worries. While September of this year experienced an impressive rate of jobs created, it also witnessed a historical number of jobs cut.

Outplacement firm Challenger, Gray & Christmas reported that U.S. employers slashed 30,000 jobs in September––a 68% increase over the previous month. They also point out that September marked the fifth time job cuts were higher than those made in corresponding months the year prior.

“Some cracks are beginning to appear in the labor market. Hiring is slowing and downsizing events are beginning to occur,” said the firm’s SVP Andrew Challenger.

It’s by no means scientific, but what we’re hearing through our grapevine seems to confirm Mr. Challenger’s assessment.

At the most recent IFPA Conference, many attendees told us two years ago they couldn’t find people. Now they are seeing people line up for jobs. The general expectation appeared to be that, thanks to the shifting economy, rising wages will be less of a pain point going forward.

Of course, if the past two years have taught us anything, what happens in the months ahead is anyone’s guess. Still, it’s likely safe to assume the Fed (like many) could do with a break.

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