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
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