Recession Readiness Insights

Economic Outlook Pt. 2: Will Labor Market Resiliency Last?

Economic Outlook Pt. 2: Will Labor Market Resiliency Last?

January 06, 2023 | Katherine Doe

Despite high-profile layoffs in the technology and media industries, the 2022 labor market has been a bright spot in the economy. How should lenders prepare for 2023? Where are the opportunities and risks? I spoke with Cris deRitis, deputy chief economist at Moody’s Analytics, in episode 17 of the Market Pulse podcast, about his outlook for the labor market in 2023 and beyond.

Listen to our podcast now for the full interview. 

This is an abbreviated version of our discussion.

The labor market has been strong. Will it continue throughout 2023? 

Cris deRitis: The labor market has been very resilient. This year during the pandemic recovery, there's been a slowdown in hiring. At the start of 2021, we were adding over 500,000 new jobs to the economy every month. At the end of 2022, it’s been closer to 250,000 - 260,000. So, the labor market is slowing, but by historical standards it’s still very, very strong. 

The labor market must add about 100,000 people to the economy every month to keep up with population growth. So, anything north of that means we continue to pull people off the sidelines and into the labor market. 

Despite all the Fed’s interest rates hikes, the labor market has been surprisingly resilient in terms of hiring and demand. There is still a lot of opportunity out there. Businesses by and large are still looking to hire qualified individuals and are struggling to find them. So, the labor market is perhaps the one or the brightest spot in the economy right now in terms of its resilience. And it’s one reason we may avoid an all-out recession going forward. 

Even if it weakens in terms of job openings being pulled, it’s unlikely we'll see widespread layoffs going forward. I think the labor market has been strong and should continue to remain relatively strong throughout 2023.

Are their risks that could send the labor market in another direction? What events do we need to be mindful of?

Cris deRitis: We have all sorts of risks or shocks to worry about, including Covid and ongoing recession risk. We haven't fully digested all the Fed’s rate hikes, and there are more to come. Monetary policy tightening would make it more expensive for consumers to borrow and businesses to invest, and that certainly will slow things down. 

There is a risk that it goes too far, right? We haven't fully appreciated just how much of an effect it will have. 

There are other unknowns due to global conflicts currently happening. If we get an oil price shock or another energy shock, supply chain issues could arise again. That could complicate the economy's trajectory when it comes to inflation and lead to even more tightening by the Federal Government. In turn, that could lead to even weaker economic growth and result in more widespread job losses. 

Additionally, we want to look at different sectors of the labor market. The overall labor market may manage well, but parts of the labor market are already under stress. For example, mortgage lending has cut back, and we’ve seen layoffs among mortgage originators. That's unlikely to change anytime soon given current interest rates. Construction has retreated as well. So clearly certain sectors are more at risk, which lenders would want to consider.

For more on the labor market, listen to the full podcast episode. The Market Pulse podcast is available on your favorite podcast listening app. If you like what you hear, subscribe to our podcast so you know when we publish new episodes. 

Katherine Doe

Katherine Doe

Director of Product Marketing, Risk Solutions

Katherine joined Equifax in 2016 and has worked in several marketing roles across our Workforce Solutions and US Information Solutions divisions. When not working on product marketing by day, Katherine enjoys beach days, visting new restaurants, and leisurely South of Broad walks with her dogs in Charleston, SC.