Labor market vs Fed hikes
The labor market is one of the key factors in judging the state of the economy, and right now that’s causing some confusion in the United States. Today’s labor market is both hot and cold. The big question for Federal Reserve policymakers is how fast it is cooling.
Perhaps the biggest question mark around this issue comes from the number of people choosing to quit their jobs. Generally speaking, a person will not quit their current job unless they have another job and that other job pays better in some way.
Set a better salary
Since the pandemic, the definition of a better salary comes in many forms.
There are many stories of people leaving a job to open their own business in the same industry – better pay means having more control over their working conditions. A Portland-area chef made headlines when he opened a restaurant after the pandemic, saying he was going to work 12-hour days back and forth and preferred to do it for himself.
For some, it’s the ability to continue working from home. As things reopen, many businesses are requiring employees to return to the office, and there’s no such thing as a 30-second commute. Companies that can offer flexibility score big with working from home.
Sometimes better pay comes in the form of better benefits. Insurance is more expensive, vacation time is starting to be put to better use, and paid time off to care for family and self is seen as a bonus. If a company can make its employees feel valued in this way, they will attract the attention of a potential worker.
And, of course, sometimes a better paycheck is just a bigger paycheck at the end of the month.
According to Ben Casselman of The New York Times, the graphs of the number of job offers and the number of quits are almost parallel lines that have fallen drastically in 2020 and have risen just as drastically since. Although these lines have a gap of a few million people between them – the number of quits consistently lower than the number of opens, that doesn’t change the fact that they’re both at record highs.
At the local level, consider the number of high-level executives leaving – most recently Kate Porsche from economic development, but in August Karen Rockwell and Darren Sidder, executive director and managing director, respectively, of Benton Habitat for Humanity.
These numbers are starting to calm down, but not to such a degree that there is no longer cause for concern, and many economists believe that the quitting line is a better barometer of market strength.
And the market is running very hot. People are buying things as fast as things are being made available, airline tickets are overselling flights, and hotel rooms are hard to come by. All of this leads to increased fees and that nasty word we hate to read – inflation.
The Fed’s view
In response to the situation, the Fed raised the prime interest rate by 0.75% for the fourth time since June. This means that over the past five months, the federal interest rate has increased by 3% or, in their preferred language, 300 basis points in four installments of 75 basis points.
Most pundits weren’t surprised by the latest rate hike, but they’re calling on the Fed to hold off on any further hikes in the immediate future. Many are hoping to see this last hike do the trick and cool the economy a bit. Then there are others who want to see the rate hikes continue until we know for sure that those hikes do the trick without dumping the US into a recession.
This is where the labor market comes in. If businesses continue to create jobs and pay higher wages, the demand for goods and services will remain high. If demand remains high, companies on the supply side of this equation will have to keep hiring and raising wages to get the workers they need.
Aside from simple supply-side considerations like purchasing items, consider how long our local government job openings list has become. Currently, Benton County is looking for 31 people to hire – from accountants to environmental health program managers. The town of Corvallis is looking for 24 new hires – from IT support specialists to engineering technicians. This means that our government is competing with the business community for at least 55 of the potential candidates.
Fed Chairman Jerome Powell said now is not the time to talk about pausing rate hikes.
Currently, there are twice as many job vacancies as there are unemployed, which means that demand continues at too high a rate for supply to sustain itself. Add to that the holiday season and the tradition of seasonal hiring, the need for more body shops to meet demand is only growing.
By Sally K Lehman