The Federal Reserve looks like it’s finally getting what it really needs in its fight to tame inflation: a cooling in the red-hot labor market. Although recent data suggest a firming in the economy, with consumer confidence, manufacturing and personal spending all exceeding forecasts, buried deep in those reports is more compelling information about the Fed’s ability to get inflation back under control without forcing the economy into a recession.
First, the Conference Board said Tuesday that its monthly consumer confidence index for May was 106.4, which was higher than all but one of the 54 economist forecasts gathered by Bloomberg. Nevertheless, the portion of the index measuring the difference between those saying jobs are plentiful versus those saying jobs are hard to get capped its biggest two-month slide since the depths of the financial crisis in early 2009 excluding the pandemic era. The decline of 7.8 points over the course of April and May “is fairly notable and is usually consistent with a recession,” Tom Porcelli, chief US economist for RBC Capital Markets, wrote in a research note Tuesday.
Second, the Institute for Supply Management said Wednesday that its gauge of factory activity increased to 56.1 last month from 55.4 in April. The level exceeded all but two of the more than 60 economist forecasts gathered by Bloomberg. Again, though, jobs were a weak point. The employment portion of the index fell below 50, the dividing line between growth and contraction, for the first time since November 2020. Back then, the economy lost jobs the following month.
For the first time since the economy began to re-open after the Covid-19 lockdowns, we’re hearing of more companies either pulling back on hiring or outright cutting jobs. The big venture capital firm Sequoia Capital told the founders of its 250 or so portfolio companies in a Zoom call last month that the current environment is a “crucible moment” in laying out the case for a long and drawn-out recession. After adding more than 1,500 employees over the last year, grocery delivery startup Instacart Inc. said last week that it is planning to slow the pace of hiring as it prepares for an initial public offering, focusing instead on profitability. Pandemic-era darlings such as fitness company Peloton Interactive Inc. have been laying off workers.
