submitted by
Uric Dufrene, Ph.D., Interim Executive Vice Chancellor for Academic Affairs, Sanders Chair in Business, Indiana University Southeast
Last year saw close to unanimity regarding the 2023 outlook and a chance of a recession. In fact, the 2023 recession may have been one of the most predicted recessions. The 100% chance of a recession has yet to arrive, and with last Friday’s labor report, the recession that everyone expected will be delayed once again.
The consensus estimate for job gains was around 180,000 and the report showed an addition of 253,000. Even a gain of 180,000 would be considered very strong and the reported result exceeded that. The largest job changes occurred in professional and business services (+43,000), health care (+40,000) and leisure and hospitality (+31,000). Manufacturing added 11,000 jobs, even with the latest ISM report on manufacturing showing contraction in the sector. The unemployment rate remained little changed at 3.4% and there was no change to labor force participation. Perhaps the worst part of the report was about the revision of March payrolls. March was revised downward, from 236,000 to 165,000.
This Wednesday brings the Consumer Price Index release. The report is expected to show additional moderation in inflation, but core inflation (inflation minus the cost of food and energy) may be sticky, one of the driving factors behind the last interest rate increase of 25 basis points. The preferred Federal Reserve indicator on inflation, the PCE Deflator, showed additional deceleration, but the numbers came in a little higher than expected. Despite the Fed concerns about inflation and guidance that shows the continued maintenance of higher rates, markets are expecting the Fed to begin cutting rates later this year. This is driven by the market view of an expected recession or slowdown later in the year.
Unemployment claims continue to run at levels that do not coincide with a recession. The labor market is showing some signs of slowing or softening, but with new claims running at 242,000, more layoffs need to occur before we get close to the declaration of a recession. Job openings plummeted last week with the release of the JOLTS report but remained higher than the number of unemployed. The latest report showed that approximately 1,7 jobs exist per unemployed person.
Locally, the metro area is approaching 700,000 non-farm payrolls. The latest metro employment report (subject to subsequent revisions) showed that metro area payrolls are at the highest in history, at 689,000. This is about 9,000 higher than the level that existed just prior to the pandemic. The unemployment rate for the metro region is at 3.1%, among the lowest in the past 30 years.
The most anticipated recession has yet to arrive. Unless there is a dramatic fall in job changes, a recession this year is getting increasingly unlikely. There are risks to the economy, and I continue to believe that a slowdown is coming. A slowing economy may still escape an official recession, however, at least for this year.