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Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions.
In this week’s episode, we discuss the latest jobs report and what it means for you.
Check out this episode on any of these platforms:
Our take on the jobs report
Despite inflation and the Federal Reserve increasing interest rates in 2022, the labor market held strong this year. Wages are up, opportunities are plentiful, and employment is strong overall, according to data released by the U.S. Bureau of Labor Statistics on Dec. 2.
One example of labor market steadiness in 2022 is the unemployment rate, which has barely budged this year, moving between 3.5% and 3.7% since March. At the same time, wages have gone up for some workers, especially for those in transportation and warehousing (+8.81%) and leisure and hospitality (+6.38%). That may not be enough to keep up with inflation, but the wage increases can help mitigate some of the sting of rising prices.
That said, as we head into 2023, there are signs that the labor market may be shifting. The end of 2022 has been marked by a number of layoffs, especially in tech and media. Over 140,000 tech workers have been laid off this year, according to layoffs.fyi, which monitors tech layoffs. As the Fed continues to raise interest rates, many are expecting layoffs to continue in the new year. Also, it’s worth brushing up on your legal protections as an employee under federal and state law.
More about the job market and inflation on NerdWallet:
Sean Pyles: Welcome to the NerdWallet Smart Money podcast, where you send us your money questions, and we answer them with the help of our genius Nerds. I'm Sean Pyles.
Anna Helhoski: And I'm Anna Helhoski. To contact the Nerds, call or text us on the Nerd hotline at 901-730-6373. That's 901-730-NERD. Or email us at [email protected]. If you like what you hear, follow us wherever you get your podcasts. Also, please leave us a review and tell your friends.
Sean Pyles: In this money news episode of Smart Money, Anna and I talk about the new jobs report and what it might mean for the job market in 2023 — aka whether we should all be worried about more layoffs in the new year.
Anna Helhoski: And joining us in this conversation is NerdWallet data writer Liz Renter.
Sean Pyles: Welcome back to Smart Money, Liz.
Liz Renter: Hey, Sean. Hey, Anna. How's it going? I'm happy to be back.
Sean Pyles: It's always so good to talk with you.
Liz Renter: Great.
Sean Pyles: So, Liz, a big part of your job is telling a story from data. What story are you seeing in the numbers?
Liz Renter: Well, I think some mixed signals, and I think that's the case when you look at any big data release from these government agencies, is there's going to be some things pointing one direction and some pointing others. I think the overarching story that I'm getting out of it is that the labor market is cooling currently with no significantly negative effects yet, but I will say this: When you're looking at data like this, the story you see or the version that you get out of it depends largely on your perspective. So as a consumer, as a worker, I don't want to see unemployment high, but as somebody who's watching the Fed, I might want to see it a little higher than it is.
Sean Pyles: So they potentially slow down the rate increases?
Liz Renter: Exactly. The unemployment rate is going to be a flag that the Fed rate hikes are doing their job, but I think there are some other signals within the jobs report that show that it is. For example, there were roughly 260,000 jobs added this past month, and it's the same rate as the month before — within a couple thousand — and so some people look at that and they're like, "Wow, it should be cooling faster." I think the expectation was 200,000 jobs last month, so it is a little higher than expected, but it's a plateau over the past few months, and it's significantly lower than it was, say, a year ago. It was around twice that a year ago. So things are headed in the right direction, maybe just a little bit slower than other people would like.
Sean Pyles: Liz, we've also seen wages go up according to the government data. Can you talk about that?
Liz Renter: Wages and prices or inflation generally move in the same direction. You've probably heard the term wage-price spiral. What we want to do is slow that down or stop that, though, because what happens is wages increase, so firms have to increase their prices. As prices increase, employees demand higher wages, which again, raises prices, and we end up with inflation going through the roof. So, yes, wages have risen, and a little higher than expected. That's one number that we would like to see cool down.
Sean Pyles: Can you also talk about how the labor market typically responds to rate hikes, which we've seen throughout the year and whether the report that just came out is signaling that we're beginning to see these responses?
Liz Renter: As rates increase, the labor market typically softens and labor demand falls, and what that means is employers are hiring less. They're looking for fewer employees. And then as things get tighter and tighter, layoffs may begin, and it's downward trajectory there. Downward in mood, that is. And so where we are in that cycle would be that labor demand is falling and the jobs report does indicate that labor demand is falling. And a report that came out earlier in the week, known as the JOLTS report, that also had similar indicators that demand is falling.
We don't see layoffs rising, though, which is great, because if you remember early on when the Fed began raising rates last spring, there was a lot of talk about a quote "soft landing," and what they were trying to do is balance this trajectory. We want the market to relax a little bit. We want labor demand to fall, but we don't want layoffs to happen in large number or a recession to happen. And so the slow and easy pace we're seeing right now depends on how you look at it. It could look, to some people, like the action of the Fed isn't having dramatic enough impact. However, it could look like it is having an impact. It's just slow and potentially setting us up for a situation where a recession and massive layoffs don't happen.
Anna Helhoski: It does seem like the Fed is pretty annoyed that the unemployment rate isn't rising faster, but we're not in a true nightmare scenario, Liz, where there would be high unemployment and also persistent high inflation. But because unemployment is still pretty low, people are still getting paid and they're continuing to spend at much higher rates than the Fed would like.
Liz Renter: Yeah. It is an absolute balancing act between all of these factors, and I look at these numbers on a daily basis. I know the two of you look at them frequently, too, and it's hard to make sense of it. I can't imagine being in the position of the Fed and trying to make these policy calls because there are so many moving parts, and it's really hard to predict which way the economy is going to go right now because, I hate to say it, but we're in unprecedented times.
Sean Pyles: Yes. They just keep on happening.
Liz Renter: Right. We haven't had this specific set of circumstances occur in this specific way, so it's pretty tough to nail this balancing act.
Sean Pyles: Yeah. Well, the job market is in such a weird place right now. We went from talks about the great resignation to fears that the recession could lead to massive layoffs. Can you go into a little more about what's happening and what people can maybe expect?
Liz Renter: I think one interesting thing to look at is how the labor market was impacted by the early days of the pandemic and how we're seeing the situation that was happening back then continue to affect employers today. So for example, you'll remember about a year and a half ago, or maybe not even a year and a half ago, where there were help wanted signs everywhere and people were having to close their businesses early because they couldn't find staff and there was a real labor market shortage.
That continues to a certain extent today, but what we're seeing as labor demand cools is that the number of openings is coming down, and what I wonder and what I think could be happening is employers are remembering this, where they couldn't get staff on duty and they're going to pull back on the job listings that they have, but they're going to hold tight to the people that they have on staff. They're going to fight that layoff stage as long as they possibly can because they don't want to be in that situation where they're losing profitability because they're having to shut off the lights at 6 p.m.
Sean Pyles: But then interestingly, one great way to keep employees around is to give them a raise, which could then cause them to raise prices and then the spiral begins.
Liz Renter: And I think it's important to note that as inflation comes down, which we will see in the coming months, as we see the impact of those Fed rates that began back in March, our dollars are going to go further. So wages are going to continue to rise, even though that gross may slow, prices are going to continue to rise, even though inflation or the rate of that rise will slow, and we'll reach a more favorable equilibrium there, where our dollars are going further and we're not feeling quite so overextended when we go to the grocery store, for example, but it will take some time.
Anna Helhoski: But Liz, you touched upon something that's pretty important, which is simply that there just aren't enough workers. I was looking at the labor force participation rate. It's pretty steady right now, but then when you actually look at it compared with pre-pandemic, the rate is definitely lower, and workers are also seeming to be able to job hop and continue to do that and you see it in the quit rates. They're not really coming down, either. It seems like that's going to be pretty durable.
Liz Renter: You're right that quit rates indicate people feel comfortable leaving their job and finding another, and so there is still some demand out there, and employees are feeling comfortable with that. If they're not getting the wage they want where they are, they can go somewhere else. To your point, I think some of that is going to continue into the longer term possibly. In conjunction with all of the economic shifts that we're seeing right now because of the pandemic, because of the war overseas, we are seeing some longer term demographic shifts that are going to extend beyond whatever happens in 2023.
So we have the aging population of baby boomers, who were planning on leaving the workforce anyways. Some of them left a little early because of the pandemic and they're not being replaced as rapidly by younger people, so it's going to be interesting to see how that plays out. I do think that immigration will play a role in that. If we can get workers from other countries here and contributing to the United States economy, that will be able to offset a little bit of the worker shortage, but that is something that we're going to see for years to come.
Anna Helhoski: So, Liz, the question that folks are probably most interested in and anxious about are layoffs. Do you think that we're going to see more in 2023? It seems mixed about how broad those will be.
Liz Renter: Oh. Predictions.
Anna Helhoski: Everyone's favorite.
Liz Renter: Yeah. Predictions and economic forecasting, all of that, it's difficult no matter when we're talking, but right now, it's very difficult because we're seeing, like we were talking about earlier, a lot of moving parts and we don't know exactly what the Fed is going to do and how the economy is going to respond. And so whether or not we see more layoffs is very much akin to that million-dollar question, are we going to see a recession? And the two are very tightly linked. So I think you're going to get a different answer depending on who you ask, and that's not to say that some people know less than others. I'm listening to very smart economists disagreeing on these facts. My guess would be, or my educated opinion would be, that layoffs are going to remain largely industry specific and fairly isolated, like what we're seeing in the tech industry right now. And I think broad-based layoffs that indicate a deep and significant recession are less likely.
Sean Pyles: Well, what we've seen lately is layoffs at companies that aren't necessarily profitable, or at divisions of companies that haven't been making money, so companies are more focused on how they can turn a profit rather than these big pie-in-the-sky, wishful tech dreams that fueled a lot of these companies’ growth over the past 10 or so years.
Anna Helhoski: Well, especially e-commerce that grew so substantially in those early days of the pandemic, and a lot of those companies were hiring really widely and trying to expand very quickly, and now some of that demand has started to diminish, and that's why we are seeing layoffs pretty concentrated in tech. I had seen the latest numbers for 150,000 tech workers just this year have been laid off among 900 companies, and now we're starting to see it hit media. CNN, Washington Post and Gannett, they all [are] starting laying people off. A couple things that I'm hearing when I'm speaking to labor economists are that there is some good news here and that's the smaller companies that previously couldn't compete with the big boys, they might be able to scoop up talent from this new pool. So even if you're laid off, maybe it won't be for long. I think it would be most worrisome if people remain out of work for extended periods.
Sean Pyles: Well, one thing we should mention is the importance of knowing your state, city, federal employee rights. If you are terminated, some employers may try to boot you with little regard to labor laws or even ethics, so it's only after employees stand up for themselves that companies may try to actually honor what they're legally required to do.
Anna Helhoski: I think it would be important to note that unionization and worker organizing increased significantly in the last fiscal year, compared with one before it, which means workers are pushing back, and we're still not quite mid-20th century union levels, and it's unlikely we'll get back to that anytime soon, if ever, but it still does seem to signal a changing tide among workers to get organized and get more pay, better hours and more protections.
Sean Pyles: Yeah. And also, I would say check out the federal and state Department of Labor websites to brush up on your legal protections now before the worst happens. We will have a link to the federal website in our show notes post. You can find that at nerdwallet.com/podcast. Well, Liz, any final thoughts about all that we've been discussing?
Liz Renter: I think I would just echo what I've said in the couple interviews past, which is there's a lot of scary things still on the news, and we've changed scary topics. Now, the scary thing is the economy and layoffs and a recession. And I would just say, "Relax." If the most well-educated economists can't agree on whether one will happen or not, it probably doesn't make sense for you to lose sleep over it. However, to your point, Sean, making a plan is important. Know we advocate having an emergency fund, just in case an emergency comes up. The same thing should apply when it comes to layoffs. Know what your first steps would be, and know what your plan would be if you hit financial strife.
Sean Pyles: Great advice. All right. Well, thank you so much for talking with us, Liz.
Liz Renter: Yeah. Absolutely. It was a blast as always.
Anna Helhoski: And that's all we have for this episode. If you have any questions about the job market or anything else money-related, turn to the Nerds and leave us a voicemail, or text us your questions at 901-730-6373. That's 901-730-NERD. You can also email us at [email protected]. This episode was produced by Sean Pyles and myself. Kaely Monahan edited our audio.
Sean Pyles: And here is our brief disclaimer. We are not financial or investment advisors. This Nerdy info is provided for general educational and entertainment purposes. It may not apply to your specific circumstances. And with that said, until next time, turn to the Nerds.