This story is partCNET’s coverage of making smart money moves in an uncertain economy.
With an unemployment rate of just 3.5%, the job market appears to be holding up, but claims for unemployment benefits are on the rise.
why does it matter
As the Federal Reserve raises interest rates to moderate inflation, it could push the US economy into a recession, prompting more companies to close or lay off workers.
what does it mean to you
Knowing the factors that drive the job market now can help you decide your next career and money move.
During a live television interview earlier this summer, the news anchor asked me point-blank if we could have a recession with such a low unemployment rate.
Thinking fast, I said, “That’s a good question,” and I deflected when talking about the state of inflation. (I’m so professional.)
Many key indicators – including high inflation, falling consumer sentiment, a volatile stock market, rising interest rates and a tight housing market for buyers and renters – suggest that the economy is on the brink of recession. But the latest monthly jobs report is still at odds with those numbers, with the unemployment rate falling slightly to 3.5% and companies adding 528,000 jobs.
While there’s still no “official” callout declaring a recession, if you ask most Americans, they’ll say it looks like the recession is here.
The news anchor’s question puzzled me for days. This shows how perplexed the US economy is right now, even for someone like me who has been covering personal finance for over two decades.
I went looking for answers. Here’s what I learned about recession fears, interest rate hikes, layoffs and more employment-related issues.
I’m hearing about more layoffs and hiring freezes. Is the unemployment rate still low?
News about layoffs are definitely trending. So far, job losses so far have been concentrated in the technology, mortgage and housing sectors, which have slowed considerably due to falling consumer spending, rising interest rates, or both.
And yet, across the spectrum, the number of job vacancies is almost double the number of unemployed job seekers. In June, there were 10.7 million jobs available, with job growth across the board. Layoffs have held steady, at between 1.3 million and 1.4 million a month since the start of the year, below pre-pandemic levels.
That could change, of course, and there are signs that the job market is cooling off a bit. Claims for unemployment benefits surged last week, reaching their highest level so far this year.
It may take longer for the unemployment rate to catch up with other lagging data points we are currently seeing. “The job market is one of the last indicators to show real stress,” said Liz Young, SoFi’s head of investment strategy.
Many large employers have made record profits during the pandemic, providing them with a greater buffer than in previous business cycles to absorb inflation or a slowdown in spending, Young pointed out. In addition, companies will first try other cost-saving measures, such as reducing marketing spend and freezing hiring. “They will try to cut costs when they can before having to lay off the workforce,” she said.
How does rising interest rates weigh on the job market?
When the Federal Reserve raises interest rates, as it has done several times since the beginning of the year, borrowing becomes more expensive for everyone, including companies that rely on credit financing to grow. When the cost of paying off debt rises, companies may decide to reduce operating costs—that is, cut staff—to pay the higher interest rates.
In short, higher interest rates can lead to more financial challenges for entrepreneurs, which can lead to layoffs and higher levels of unemployment.
As a mother, I took time off from the job market during the pandemic. How good are my job prospects?
Certain industries are hiring more than others, but generally, this is a job seeker’s market. Leisure and hospitality, professional and business services and healthcare added the most jobs in July.
If you’re a woman, it’s not surprising that you’ve taken time off the job market during the pandemic. Employers must understand gaps in CVs dating back to 2020. More women lost their jobs that year than men: Between January and December 2020, 2.1 million women left the workforce, nearly half of whom were black and latinas, based on an analysis by the National Center for Women’s Rights.
And while some women are still struggling to return due to family restrictions and struggles with work-life balance, a promising new paper suggests that women have returned. In her research for the Brookings Institution, Lauren Bauer, an economic studies researcher, found that women between the ages of 25 and 44, most with college degrees, have returned to pre-COVID levels of work participation.
“There’s something to be said for women who have had the last two years on their chin and haven’t accepted that it would change the trajectory of their lives,” Bauer told me. Given how difficult their lives have been, they have been “far more proactive in staying on the right path for themselves and their children in ways we couldn’t have predicted.”
Can I ask for a raise in these uncertain times?
This depends on the financial health of your company, but given the fact that there are so many job openings compared to job seekers, the power might be skewed a little more towards workers.
“My guess is that wages have some momentum and that … workers still have a fair amount of bargaining power,” says Jesse Rothstein, professor of public policy and economics at the University of California, Berkeley.
About half of workers say they received a pay raise last year, although it was not enough in the face of inflation.
Here’s my take: Instead of worrying about uncertainty in the economy, focus on your company’s financial health to assess whether you could make more money this year. If your company has implemented a hiring freeze or has cut expenses, this could be a precarious time to ask for a raise. On the other hand, if your employer has had a profitable 2022 so far (you can look at earnings reports if you are a public company or ask a finance or accounting colleague for information), this could be a good opportunity to apply for one. salary increase.
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If I get fired, how long will it take to find a new job?
The average amount of time someone was on unemployment benefits in June was 22 weeks. In theory, this means that some job seekers were able to find a new job in about four and a half months. Still, this is an imperfect measure, as some job seekers are cut out of unemployment benefits before getting a new job. Experts say many long-term unemployed workers are underestimated in official employment figures.
How should I prepare for a possible layoff?
Focus on the decisions that are within your control, including communicating with your employer now about how you can continue to help add more value, productivity, and possibly revenue in these difficult times. Take care of your own personal finances by saving and paying off high-interest debt, reviewing your goals, and doing your best to create security in good times and bad.
Can there be a recession if the job market is relatively healthy?
The National Bureau of Economic Research makes the official call for a recession, taking into account the health of the labor market as well as other economic indicators such as retail sales, industrial production and personal income growth. Historically, the most severe recessions have been marked by widespread layoffs and cyclical unemployment, which is a drop in demand for hiring.
However, deciding whether, when or how the recession is going to happen is not the best use of one’s time. “I think this is mostly a semantic argument,” Rothstein said.
Unfortunately, that’s what I wish I had said in the television appearance. I was better the second time around.