Despite a July Commerce Department report showing a second consecutive quarter of negative GDP growth — the classic definition of a recession — Biden administration officials insisted that continued strength in employment data proves otherwise.
The jobs numbers have most certainly been strong. Earlier this month, the Labor Department reported that 528,000 jobs were added to the economy in July, more than double the 258,000 economists had been expecting. This pushed the unemployment rate down to 3.5 percent.
However, a survey of business leaders released by consultant PwC on Thursday, showing that over 50 percent of U.S. corporations are planning either hiring freezes or layoffs in the next year, suggests the robust jobs market may not last. If corporate hiring does indeed contract, by the administration’s own definition, the economy could very well be staring down a recession.
PwC polled over 700 executives and board members across a wide range of industries and found that many companies are already “taking steps to streamline the workforce.” The survey showed that 50 percent are reducing overall headcount, 52 percent have implemented hiring freezes, 46 percent are reducing or eliminating signing bonuses, and 44 percent have rescinded job offers.
According to Fox Business News, in the past few weeks, companies including Alphabet’s Google, Walmart, Apple, Meta and Microsoft have reported hiring freezes or layoffs.
“Respondents are also taking proactive steps to streamline the workforce and establish the appropriate mix of worker skills for the future,” according to PwC. “This comes as no surprise. After a frenzy of hiring and a tight labor market over the past few years, executives see the distinction between having people and having people with the right skills.”
The survey found that, where possible, companies have turned to automation to address worker shortages that have developed. Businesses were unable to fill more task-oriented positions because so many workers realized it was more profitable to collect unemployment benefits than to work.
Some industries, such as consumer markets and technology, media and telecommunications companies, lend themselves toward automation more than others. Others, particularly those in the healthcare sector, do not.
In an effort to retain valuable existing employees, 64 percent of those surveyed said they had increased compensation and 70 percent said their businesses have expanded remote work options.
The effects of the Federal Reserve’s aggressive series of interest-rate hikes, implemented to put the brakes on inflation, are already rippling through the economy, most visibly in the housing sector. The Fed’s most recent increase of 75 basis points in the federal funds rate, the rate at which banks lend to each other overnight, came at the end of their July 26-27 meeting.
In a July 27 press release, the Federal Reserve Open Market Committee signaled the rate hikes will continue as they work to bring inflation down to their target of 2 percent from the current level of 8.5 percent.
Don’t expect that pace to continue. Although the Federal Reserve is trying to engineer a “soft landing” to try to bring down inflation without causing a recession, the unprecedented size of the rate hikes and their frequency can’t help but weaken the jobs numbers.
Fox reported The Conference Board’s “leading economic index — which tracks 10 indicators designed to measure the health of the economy — dropped by 0.4% in July, on top of a 0.7% decline in June. … The gauge has now fallen for five consecutive months.”
Ataman Ozyildirim, the senior director of economics at The Conference Board, told Fox, “Consumer pessimism and equity market volatility as well as slowing labor markets, housing construction, and manufacturing new orders suggest that economic weakness will intensify and spread more broadly throughout the U.S. economy. The Conference Board projects the U.S. economy will not expand in the third quarter and could tip into a short but mild recession by the end of the year or early 2023.”
US economy likely to face recession by year's end as growth continues to slow, report says https://t.co/fvFnL0pjQn
— Fox News (@FoxNews) August 20, 2022
In the company’s “mid-year outlook” report, Chris Hyzy, Chief Investment Officer for Merrill (formerly Merrill Lynch) and Bank of America Private Banking, was asked about the likelihood of a “soft landing” for the economy.
He replied, “Although the risk of recession in 2023 was still low this past April, the overall risk has been rising each week.”
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