The U.S. Federal Reserve has increased interest rates in an effort to lower inflation. If the Fed achieves its goal of bringing inflation down without exacerbating a recession, the result would be known as a soft landing. According to current Labor Department information regarding job openings, resignations, recruiting and layoffs, it appears that a soft landing may be close at hand.
Economists said the latest U.S. labor data signaled the economy was inching closer to the desirable outcome of a 'soft landing'. This is when the Federal Reserve has successfully reined in inflation without causing a recession. Tuesday's Job Openings and Labor Turnover Survey from the Labor Department reported a decrease of 617,000 work openings to 8.7 million for October, which is the lowest it's been since March 2021. Jason Furman, a Harvard University professor and ex-chair of the Obama administration's White House Council of Economic Advisers, said the report suggested the conditions for a sustainable soft landing were coming to the fore.
It may seem like bad news at first glance, but the weakening labor market is intentional. The Federal Reserve was proactive in early 2022, raising borrowing costs to bring down persistently high inflation. Interest rates rose to their highest level since 2001, with the goal of stabilizing the economy and the workforce. Walking a fine line, the Fed has been trying to reduce inflation while avoiding the potential economic downturn of a hard landing. Economists at the Brookings Institution recently described the objective as finding the "Goldilocks" porridge of central banking: an economy that is not too hot (inflationary) or too cold (in recession).
Julia Pollak, chief economist at ZipRecruiter, asserted that the current probability of a soft landing is the greatest it can be. "We are very, very close," she said. Although there isn't a precise description of a soft landing, the American Economic Association noted that it has only been achieved once in the 11 monetary-policy-tightening cycles of the Federal Reserve since 1965.
The labor market had a significant impact on inflation in 2021 as the U.S. economy reopened: Record-high job openings meant it was easy for workers to change jobs or get higher pay. Wages saw a substantial increase to levels not seen in decades. With these developments, there were worries of a "wage-price spiral," in which companies keep increasing prices in response to higher wages and workers demand higher wages to keep up with rising prices. Economists, however, have not seen this occur.
Economists stated that the newest labor statistics boosted the optimistic news about a smooth decline. Quitting jobs and being hired stayed the same as they were before the pandemic began, while layoffs stayed low and were 17% less than the pre-pandemic rate. In spite of the substantial decrease in job openings, the number is still 25% more than February 2020.
The JOLTS report in October showed that the ratio of job openings to unemployed workers had decreased to 1.3, which is lower than the pre-pandemic level of 1.2 and much lower than the pandemic-era peak of 2.0. Nick Bunker, director of economic research at the Indeed Hiring Lab, claimed on Tuesday that this report brings promise of the labor market stabilizing. He adds that there is no longer a need to take any corrective measures since the market is already back in balance.
Economists argued that while the labor market is still favorable, working conditions have become less desirable in comparison to 2021 and 2022. Pay increases and signing bonuses are not as common, and the job opportunities are tougher to come by. Pollak commented that, apart from the health care industry which is suffering from a labor shortage, the available opportunities are "not quite as attractive."
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