👷 Stubborn jobs strength

Plus: Solid surveys | Tuesday, January 24, 2023

Open in app View in browser   Presented By SiriusXM   Axios Macro By Neil Irwin and Courtenay Brown · Jan 24, 2023 It's a quiet week for the Federal Reserve amid the customary blackout — during which its officials avoid public speeches or interviews — before next week's policy meeting. But that won't stop us from looking at how little the central bank's rate hikes have affected employment (yet) in what are historically interest-sensitive sectors. That, and the latest indicators of business activity, below. Today's newsletter, edited by Javier E. David, is 614 words, a 2.5-minute read.     1 big thing: The labor market's weird response to higher rates Data: Bureau of Labor Statistics; Chart: Axios Visuals The traditional story of how the Fed slows the economy to bring down inflation goes like this: It tightens money to curb demand in sectors of the economy sensitive to rates, causing them to contract. But this time around, something weird is happening. The sectors that traditionally contract when the Fed tightens policy have kept adding workers despite rapid rate hikes. Why it matters: Labor's resilience in areas that are historically most sensitive to interest rate hikes — accompanied by declining inflationary pressure — suggests the Fed might be able to bring down inflation without widespread layoffs that accompany recessions. State of play: A consistent feature of recessions is that employment in construction, and durable goods manufacturing, contracts in recessions. Those sectors, to a significant degree, are the business cycle. They expand in good times and contract in hard times, while other sectors like health care are more slow-and-steady. But there is no sign of dramatic contraction in those sectors, despite aggressive monetary tightening during 2022 that make buying a house, car, or other big-ticket items more expensive. By the numbers: Construction employment rose 3.1% in 2022, rising in 11 of 12 months. Durable goods manufacturing employment rose 3.3%, rising in all 12 months. Neither sector appeared to lose momentum as the year progressed and rate hikes started to bite; instead, they continued to add jobs at a steady clip. The 28,000 construction positions added in December was the highest since May. The strength in interest-sensitive sectors may reflect backlogs of demand for houses and cars from the supply-constrained period of 2021, argue Justin Bloesch and Mike Konczal of the Roosevelt Institute. "With supply still far behind demand, employers have no reason to lay off workers," they wrote recently. This may be good news, implying a path where the supply side of the economy continues to heal. That helps bring down inflation pressures without mass layoffs — at least in the sectors usually affected by tighter money. "[I]t's possible that all of the labor market cooling happens on the churn and wages side, and almost none on the layoffs side," they added. Yes, but: The technology sector is one outlier, where big name companies continue to shed tens of thousands of workers. Layoffs have been disproportionately tech-related. Still, the information sector is just a sliver (roughly 2%) of overall employment. As it stands, there may be a tech recession as some companies adjust to more normal business conditions, after historic demand and hiring early in the pandemic. So far, it's contained and hasn't made a wave in the labor market data. The bottom line: The labor market has cooled off, but without a significant uptick in layoffs — even in the sectors most impacted by higher rates.     A message from SiriusXM Stream SiriusXM now and get 3 months for free     Stream more than 425 channels on your devices for free on the SXM App, including expertly curated ad-free music, live sports, personalized stations and more. Next steps: Sign up now to get 3 months free. Cancel anytime. Learn more about the offer and start streaming. See offer details.     2. Not-so-terrible picture from the latest surveys Illustration: Annelise Capossela/Axios   A round of surveys out this morning also undermine the more pessimistic views of where the economy is heading. Driving the news: The Philadelphia Fed's survey of non-manufacturing businesses in the mid-Atlantic rose in December, with 38% of respondents seeing increases in activity, versus 25% seeing declines. The new orders index was the strongest it has been since July. Meanwhile, the Richmond Fed's activity indexes — covering the states from South Carolina to Maryland — sent a mixed message, with its manufacturing activity survey ticking down this month but service industry activity improving. Also out this morning, the S&P Flash PMI data rose to three-month highs for both business output and business activity. Those numbers, which both came in at 46.6, remain below 50, indicating contracting business — but slower contraction than in December. The bottom line: Taken together, these surveys point to an economy that is experiencing some bumps, but is decidedly not in free fall.     A message from SiriusXM Get free access to music, sports, news and more     Subscribe to SiriusXM Streaming and get access to 3 months of free: Expertly curated ad-free music. Pandora artist stations. Live sports. Celebrity hosts, comedians and newscasters. Howard Stern and more. More info: Listen on your phone, at home and more with the SXM App. See offer details.   Are you a fan of this email format? Your essential communications — to staff, clients and other stakeholders — can have the same style. Axios HQ, a powerful platform, will help you do it.   Axios thanks our partners for supporting our newsletters. Sponsorship has no influence on editorial content. Axios, 3100 Clarendon B‌lvd, Arlington VA 22201   You received this email because you signed up for newsletters from Axios. To stop receiving this newsletter, unsubscribe or manage your email preferences.   Was this email forwarded to you? Sign up now to get Axios in your inbox.   Follow Axios on social media: