Employment Growth Is Still Too Hot, Even for This Economy

Chief Economist Eugenio J. Alemán discusses current economic conditions.

The U.S. economy grew at a more-than-expected 2.0% annualized rate of growth during the first quarter of the year compared to the previous quarter. In some sense, this rate of economic growth makes a little bit more sense than the previously reported 1.3% rate estimated during the previous BEA release. This is because employment growth has continued to outpace even this higher rate of economic growth.

As we wrote in our June 9, 2023, weekly publication, Thoughts of The Week, the labor market has been too hot during the first five months of the year and is bound to slow down considerably during the second half of the year. Within that publication, we mentioned that several sectors had already created more jobs in five months this year than what had been created for the whole of 2019, which was just before the COVID-19 pandemic and when the U.S. economy posted a growth rate of 2.2% for the whole year. Other sectors were close to creating a similar number of jobs in five months in 2023 than had created in 2019 while there were other sectors that were lagging.

However, overall, the U.S. economy has created 80% of the jobs created in 2019 so far in the first five months of 2023, at a time when we are still expecting GDP growth to come in below the growth rate experienced in 2019 for the whole year. This is the reason why we expect employment to slow down considerably during the second half of this year and one of the reasons why we are still calling for a recession starting in the last quarter of the year.

The second half of the year is going to be all about the consumption (…and inflation)

The second half of the year is going to be about the U.S. consumer. Although consumption was very strong during the first quarter of the year, we are starting to see weakness on the horizon as pandemic excess savings continue to be depleted and millions of Americans that have not been paying student loans for several years have to repurpose their current incomes in order to start paying those loans once again.