- The current hot labor market will probably cool as monetary tightening by the Federal Reserve further slows economic growth and job losses increase and job openings decrease during the next two years, Fitch Ratings said.
- The withdrawal of stimulus, a drag on real wages from inflation and a downturn in Europe will probably push the U.S. into recession next year, Fitch said in the Nov. 21 report.
- The unemployment rate will increase to 4.7% by the end of 2023, according to Fitch. Meanwhile, “the job openings rate is expected to decline from the current rate of 6.5% to 5.2% in 2024, reducing job openings by 2.1 million,” Olu Sonola, head of U.S. Regional Economics for Fitch Ratings, said in the report.
As the job openings rate falls, the job openings to unemployment ratio will also drop to approximately 1.0 in 2024 from its currently level of 1.86, Sonola said.
While confronting the the worst price pressures in nearly 40 years, CFOs have struggled for several months to hire and retain workers in an unusually tight labor market.
The U.S. labor market imbalance peaked in March at approximately 3.5% of the labor force, Fitch said. At the end of September, labor demand (or employment plus job openings) exceeded labor supply by about 2.9% of the labor force, according to Fitch.
For example, social media platform Meta on Nov. 10 announced plans to cut 30,000 workers, or 13% of its staff. Several biotechnology companies have also reduced spending through layoffs or restructuing.
Job openings have far exceeded the number of people looking for work during much of 2022 even as the Fed has reduced accommodation at the fastest pace since the 1980s. Policymakers raised the federal funds rate 0.75 percentage point on Nov. 2 in the fourth increase of that magnitude in as many meetings.
The Fed is concerned that the high ratio of job openings to unemployment is putting upward pressure on wages, the report said, noting that a gradual cooling in the labor market is easing in price pressures.
While the U.S. civilian labor force has recently returned to pre-COVID-19 levels, it remains more than 4 million workers below the pre-coronavirus trend, Fitch said.
Increased retirements during the pandemic, lower immigration, the lingering impact of COVID-19 on employee absences and the aging U.S. labor force have inhibited a recovery in the labor participation rate, according to Fitch.