What a difference a job report makes. Earlier in the summer, people were worried that the economy was too hot. But then – in response mainly to weaker-than-expected employment data released on Aug. 2 – stocks plunged. Some analysts even worried that a recession could be on the horizon.
I beg everyone, from investors to consumers to policymakers: Please calm down, take 10 deep breaths and relax. The economic data, taken together, paint a brighter, if more complex, picture.
When the most recent U.S. jobs report was released, the market wasn’t happy. “Dow plunges nearly 1,000 points after report shows sharp drop in U.S. hiring,” read one headline. When the Dow closed on the day of the report, the index had lost about 2% in value compared with the previous day’s close.
The report that sparked all this turmoil found that the U.S. economy had added a mere 114,000 jobs in July – lower than the expected 175,000.
Those figures were widely seen as disappointing; As CNN put it, they raised concerns that “the job market is slowing too quickly and could trigger a recession.” Many news stories noted the report had triggered an indicator known as the Sahm Rule, which, in the past, has reliably signaled a recession.
In response to this perceived recession threat, many people have been criticizing the Federal Reserve for not cutting interest rates sooner. U.S. Sen. Elizabeth Warren, for one, said the chair of the central bank “made a serious mistake not cutting interest rates.” She added, “He’s been warned over and over again that waiting too long risks driving the economy into a ditch.”
While the Federal Reserve is expected to cut rates in September, critics are calling for it to pick up the pace.
But all of this – the selloff, the entreaties to Fed Chair Jerome Powell, the talk of a “hard landing” – is premature.
It’s true that the latest jobs numbers were lower than expected. It’s also true that stocks closed lower on the day the figures were released. But that doesn’t prove a recession is imminent or that the Fed has mismanaged the economy, and it doesn’t mean anyone’s 401(k) is in danger. It simply means that the economy is slowing down – and, I might add, this is expected.
That’s because the Fed has been trying to slow the economy in order to lower inflation. Since May 2022, its strategy has been to gradually ratchet up interest rates, which slows demand, which in turn reduces pressure on inflation. If successful, this strategy is believed to guide the economy to slower growth and a lower – more stable – inflation rate, while averting a recession. It is, in other words, the “soft landing.”
The jobs data also tells a more complex story than the headlines suggest.
True, there are indications of layoffs. Agriculture machinery giant John Deere has been in the headlines for planning to lay off about 600 workers. The computer chip manufacturer Intel Corp. is also planning job cuts.
The report itself notes net jobs losses in the auto industry, information services and temporary work.
To be sure, the impact of these job losses on individuals and their families should never be diminished. However, while some sectors were shedding jobs, others were adding them: The construction, transportation and health services fields all saw employment gains.
Such mixed signals across sectors are common. They’re a sign that the job market is slowing in aggregate – and that’s very different from a recession, during which layoffs tend to be seen across the economy.
It’s also worth considering the broader context. While the latest figures were disappointing, this has been the exception, not the norm, of late. Since at least January, the U.S. job market has been exceeding expectations
The U.S. economy added a whopping 272,000 jobs in May, for example – well ahead of the 180,000 that analysts expected. At that time, some people were criticizing the Fed for not doing enough to slow the economy – the opposite of Warren’s current complaint.
So what does the July jobs report portend? In the end, I think it simply means that the economy is slowing down. Higher interest rates are dampening demand, encouraging slower job growth and reducing pressure on wages and prices. This is what a soft landing looks like. With even the softest of landings, a bit of turbulence can happen.
Christopher Decker is a professor of economics at the University of Nebraska Omaha. Distributed by The Conversation and The Associated Press.
