ALBAWABA – The United States (US) Federal Reserve Board’s (Fed) preferred US inflation metrics are projected to come out higher than expected on Friday, despite weakening labor market data.
Both the personal consumption expenditures price index and the core US inflation rate, excluding food and fuel prices, are well above the Fed’s 2 percent goal, Bloomberg reported.
Fresh US inflation readouts this week will most likely feed into further policy tightening by the Fed and European Central Bank, according to the New York-based news agency.
Meanwhile, the balance of power in the jobs market is slowly swaying back toward employers.
The US quits to layoffs ratio, Labor Leverage Ratio, has retracted about two-thirds in 2023, compared to the years 2021 and 2022, Bloomberg reported. It was developed by ex-senior White House economist Aaron Sojourner.
According to Bloomberg, the ratio surged when companies ramped up staffing after pandemic-driven lockdowns and workers were enjoying outsized pay offers for their services.
Companies in the second half of 2023 are being choosier with their hires, and workers are becoming more cautious about quitting.
“The playing field is evening out,” Tom Gimbel told Bloomberg, chief executive officer of Chicago-based employment agency LaSalle Network.
Bloomberg expects the shift in the labor market to come as good news to the Fed and Chairman Jerome Powell.
Labor market, interest rates and US inflation
Powell had repeatedly warned of the implications of a too-hot jobs market on labor costs and inflation.
“There has been some loosening in labor-market conditions,” Powell told reporters on June 14 after the central bank left interest rates unchanged for the first time in 11 meetings.
“We need to see that continue,” he underscored.
In a statement to Congress this week, Powell voiced hopes that a decline in job openings and an increase in the supply of workers could help bring the labor market back into better balance. Rather than a significant rise in unemployment.
The labor leverage ratio topped out in April 2022, one month after the Fed began raising interest rates.
Sojourner, now a senior researcher at the W.E. Upjohn Institute for Employment Research, told Bloomberg that the Fed’s action conveyed to employers that they intend to slow down the economy. More so, that they may not need as many workers going forward as they had expected.
A year ago, “if a company didn’t respond within 24 hours after someone had an interview with them or they didn’t make a decision within a week on whether they wanted to hire them, that candidate was gone,” said Amy Laiker, of the Tiger Recruitment New York office.
“Whereas now, they can go a week, two weeks, three weeks, sometimes even four weeks. And that candidate’s probably still out there in the market,” she underscored.
Wages and the labor market
As for wages in the US, worker compensation grew 4.8 percent in the first quarter from a year ago, according to data issued by the US labor department. The previous quarter saw a 5.1 percent growth rate in worker compensation.
That’s still well above the 2.7 percent gain seen in 2019, before the pandemic, according to Bloomberg.
In the meantime, the rate of people leaving their jobs in a month compared to overall employment has dropped to 2.4 percent in April, slightly above the 2.3 percent average of 2019. If anything, this signifies the end of the so-called Great Resignation.
