This story is part ofCNET’s coverage of how to make smart money navigates an uncertain economy.
The job market appears to be holding up with a 3.5% unemployment rate, but it’s uncertain how long that will last in a cooling economy.
Why it matters
As the Federal Reserve raises interest rates to tame inflation, it could send the U.S. economy into recession, prompting more businesses to close or lay off workers.
What does this mean for you?
Being aware of the factors affecting the job market now can help you make decisions about your next career and money flow.
During a live TV interview earlier this summer, a news anchor shamelessly asked me if a recession could happen with the unemployment rate so low.
Needing to think on my feet, I said, “That’s a good question,” and digressed by talking about the state of inflation. (I’m such a pro.)
Many key indicators—including high inflation, declining consumer sentiment, a volatile stock market, rising interest rates and a tight housing market for both buyers and renters—suggest that the economy is on the brink of recession. But the latest monthly jobs report contradicts those numbers, with the unemployment rate falling slightly to 3.5% and companies adding 528,000 jobs.
While there is still no “official” call declaring a recession, if you ask most Americans, they will tell you that it looks like a downturn is on the way.
The news anchor’s question puzzled me for days. It speaks to how messed up the US economy is right now, even for someone like me who has been involved in personal finance for over two decades.
I was looking for answers to this and many other job-related questions. Here is what I learned.
I read more about layoffs and hiring freezes. Is the unemployment rate really that low?
News of layoffs is definitely trending. Still, job losses remain concentrated in the technology, mortgage and housing industries, which have slowed considerably due to either a decline in consumer spending, rising interest rates, or both.
Across the spectrum, the number of job vacancies is almost double the number of unemployed job seekers. There were 10.7 million jobs available in June, with large-scale job growth. Layoffs have remained steady at between 1.3 million and 1.4 million each month since the start of the year, down from pre-pandemic levels.
Of course, that can change, and there are signs that the job market is cooling down a bit. It just may take longer for the unemployment rate to catch up with the other lagging data we’re seeing at the moment.
“The labor market is one of the last indicators to show real stress,” said Liz Young, head of investment strategy at SoFi. Many large employers have earned record profits during the pandemic, giving them more buffer than in previous business cycles to absorb inflation or slowdowns in spending, Young pointed out. Additionally, companies will first try other austerity measures, such as cutting marketing spending and hiring freezes. “They’re going to try to cut costs when they can before they have to lay off the workforce,” she said.
Why are rising interest rates straining the labor market?
When the Federal Reserve raises interest rates, which it has done several times since the start of the year, borrowing will become more expensive for everyone, including businesses that rely on growth in credit financing. When the cost of debt jumps, businesses may decide to cut operating costs—that is, cut staff—to afford higher interest burdens. In short, steeper interest rates can lead to greater financial problems for business owners, which can then lead to layoffs and higher unemployment rates.
I’m a mom who took time out of the workforce during the pandemic. How good are my job prospects now?
Some industries are hiring more than others, but generally this is a job seeker’s market. Leisure and hospitality, professional and business services and healthcare added the most jobs in July.
If you’re a woman, it’s no wonder you took time off from the workforce during the pandemic. Employers should understand resume gaps in 2020. More women than men lost their jobs this year: Between January and December 2020, 2.1 million women left the workforce, nearly half of whom were black and Latina, according to an analysis by the National Center for women’s rights.
And while some women still struggle to make a comeback due to family constraints and work-life balance difficulties, a promising new documentary suggests that women have made quite a comeback. In her research for the Brookings Institution, Lauren Bauer, a fellow in economic studies, found that women ages 25 to 44, mostly college-educated, have returned to pre-Covid levels of work engagement.
“There’s something to be said for women who take the last few years on the chin and don’t let it change the trajectory of their lives,” Bauer told me. Because of how difficult their lives were, they were “much more proactive about staying on track for themselves and their children in a way that we couldn’t have predicted.”
Can I still ask for a raise in these uncertain times – and be successful?
It depends on the financial health of your company, but since there are so many vacancies compared to job seekers, the power might be tilted a little more towards workers.
“My guess is that wages have some momentum and that … workers still have a lot of bargaining power,” says Jesse Rothstein, a professor of public policy and economics at the University of California, Berkeley.
About half of workers say they’ve seen a pay rise in the past year, though that’s not enough given inflation.
My advice: Rather than worrying about the uncertainty in the economy, focus on the financial health of your company to assess whether it will be possible to make more money this year. If your company has implemented a hiring freeze or cut spending, it can be an uncertain time to ask for a raise. On the other hand, if your employer has had a profitable year so far in 2022 (you can look up earnings statements if it’s a public company, or ask a finance or accounting colleague for information), this may be a good opportunity to petition for a pay bump.
If I get fired now, how long can it take to find a new job?
The average length of time someone collected unemployment insurance in June was 22 weeks. In theory, this means that some job seekers were able to find a new job in around four and a half months. Still, it’s an imperfect measure because some jobseekers are cut off from unemployment benefits before they find a new job. Experts say that many long-term unemployed workers are underestimated in official employment figures.
How can I prepare for a potential layoff?
Focus on the decisions you have control over, including communicating with your employer now about how you can continue to help add more value, productivity and perhaps even revenue during these challenging times. Take charge of your personal finances by saving and paying off high-interest debt, reassessing your goals, and doing your best to create security in good times and bad.
Can a recession occur if the labor market is relatively healthy?
The National Bureau of Economic Research officially calls for a recession, taking into account the health of the labor market in addition to other economic indicators such as retail sales, industrial production and personal income growth. Historically, the worst recessions have been marked by large-scale layoffs and cyclical unemployment, which is a drop in demand for hiring.
However, deciding if, when, or how a recession will hit is not the best use of one’s time. “I think it’s mostly a semantics argument,” Rothstein said.
Alas, this is something I wish I had said on TV. I did better the second time around.