Economic Update | Has the Soft Landing Come and Gone?

submitted by
Uric Dufrene, Ph.D.,  Sanders Chair in Business, Indiana University Southeast

The monthly national jobs report released showed another big gain in job creation.  The Bureau of Labor Statistics report showed that the nation’s economy gained another 275,000 jobs during February,  much higher than consensus estimates of 200,000. Revisions from the prior two months did show that payrolls were reduced by a combined 167,000, pointing to some softness in previous strong reports. While the overall report was favorable, looking beyond the headline numbers can find potential clues on the overall trajectory of the economy. 

While the headline 275,000 jobs number from the survey of establishments was favorable, numbers from the household survey pointed to potential concerns about the economic outlook. Employment declined by 184,000, and this marks another consecutive decline since November 2023. Since November 2023, employment has declined by nearly 900,000. The decline in employment showed up in the uptick in the nation’s unemployment rate, from 3.7% to 3.9%. The increase in the unemployment rate was due to an increase in unemployed workers of 334,000. Since the same time last year, the number of unemployed workers has increased by close to 500,000.     

Examining unemployment rates by occupation might also offer signs about the economy. The unemployment rate data by occupation is non-seasonally adjusted. So, we need to examine the year-over-year change in the unemployment rate to ascertain any relevant information about potential trends. One occupation with signaling potential is sales and related occupations, with the unemployment rate usually undergoing a noticeable change prior to and during a recession. Simply speaking, employers need more sales-related occupations when an increase in sales is anticipated and need fewer on the converse. The unemployment rate for sales-related occupations increased from 4% of February last year to 4.7% in February 2024. In the tech-led recession of 2001, the unemployment rate for sales occupations increased from 3.3% to 4.9% just prior to the recession’s start. The Great Recession did not see any declines in sales-related occupations until the actual start of the recession, with the unemployment rate increasing from 5.2% to almost 9% by the end of the recession.  While the current change is a noticeable uptick, we need to see sustained increases for definitive conclusions on growth projections and more conclusive statements on any pending recession.

One industry that can provide potential hints on the economic trajectory is professional and business services, specifically temporary employment services.  As the economy heats up, employers will first expand with temporary labor. To the contrary, when employers are anticipating or experiencing declines in economic activity, temporary workers are usually the first to experience layoffs. Temporary labor services are part of the professional and business services sector, and the unemployment rate has increased from 4.2% to 5.1%.  Just as recently as October 2023, the unemployment rate in professional and business services was 3.2%.  Additionally, the February jobs report did show a decline in temporary labor services of 15,400. As a comparison, the 2001 recession saw the unemployment rate in professional and business services increase from 4.1% to 5.9% just prior to the economic slowdown. For the Great Recession, professional and business services saw an increase in unemployment from 4.8% to 6.4%. There has been a noticeable increase in unemployment, but still not the kind of changes that might coincide with a recession. This is another number that warrants watching. 

My economic outlook for 2024 called for “slower growth” and a pullback in consumer spending. We are seeing emerging signs of softer growth along with consumer spending, but we are not close to calling for a recession. Over the next several months, we will hear more talk about various forms of stagflation, a combination of higher prices and slower growth. As the inflation rate approaches the Federal Reserve’s desired level of 2%, getting from 3 plus percent down to 2% is facing headwinds, implying that interest rates will be higher for longer.  The soft landing may have come and gone as the  “last mile” of inflation remains stubborn, and signs of softer growth emerge. 

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