The Not-So-Great Resignation

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What’s going on?

Data out on Friday showed that the US added fewer jobs than expected last month, and companies are getting to a point where they’ll take what they can get.

What does this mean?

The US has beaten economists’ expectations for the last two months, but clearly it couldn’t handle the mounting pressure: the country posted 431,000 new jobs last month – some way shy of the 490,000 economists were expecting. And while that’s nothing to be sniffed at, there are still almost twice as many job openings as there are job seekers.

Still, let’s look at the bigger picture: the US added nearly 1.7 million jobs last quarter, which puts economists’ expectations to shame. What’s more, the proportion of people in or looking for work – known as the “labor force participation rate” – is back to within a hair’s breadth of pre-pandemic levels.

Why should I care?

The bigger picture: We’re spiraling.

Desperate times call for desperate measures: a near-record 49% of small US businesses raised salaries in March in an effort to fill their vacant roles, helping push the average hourly pay up 5.6% from the same time last year. Thing is, businesses will probably just pass those higher costs back onto customers by raising prices, and that potential “wage price spiral” could push up inflation and put more even pressure on the economy as a whole.

For markets: A recession is nearly inevitable.

Investors are worried that Friday’s strong data will encourage the Federal Reserve to push ahead with plans to raise interest rates multiple times this year, potentially even with bigger increases than the typical 0.25%. And since investors are aware of the short-term damage that could do to economic growth, they’re flocking to longer-term assets like 10-year bonds. In fact, demand for them pushed their yields lower than those of 2-year bonds on Friday. That “inversion” is as rare as it is foreboding: it’s historically been a sign of an imminent recession.

Originally Posted April 1, 2022 – The Not-So-Great Resignation

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