Survey: Experts see major slowdown in job growth as hawkish Fed raises rates

Americans can expect a robust labor market over the next year, but job creation is expected to slow as the economy loses momentum and the pool of workers remains tight.

That’s according to economists polled for Bankrate’s First Quarter Economic Indicators Survey, which predicts employers are expected to add an average of 281,000 new jobs each month by March 2023, nearly twice as slow as the previous rate of 556,000 over 12 months. Only one economist predicted job gains would pick up, according to the poll.

Even so, Americans are unlikely to have to spend much time looking for a new job, welcome news amid heightened uncertainty surrounding inflation, the Federal Reserve and the conflict in Ukraine.

The majority (or 58%) of experts say unemployment is expected to fall further from its current level of 3.8% by March 2023, while only 37% expect the national unemployment rate to rise . On average, economists see an unemployment rate of 3.67%, which would be close to the pre-pandemic low of 3.5%.

“In this time of heightened uncertainty, we can take some comfort in the fact that the United States is either close to full employment or at full employment,” said Mark Hamrick, Bankrate’s senior economic analyst and Washington bureau chief. “While less than optimal for employers, it provides a constructive springboard for many individuals and households to earn income and strive to achieve their financial goals.”

Forecasts and analysis:

What should happen with the labor market this year

Assuming the pace predicted by economists materializes, the US economy will have recovered all of the nearly 22 million jobs lost to the pandemic by November – nearly two and a half years since the recession induced by the coronavirus. By March 2023, employers would also have about 1.5 million more jobs than before the downturn.

While this is an important step, the long-awaited recovery will likely still fall short of what the labor market would have been had the outbreak never happened. If employers maintained the same pace of job creation that prevailed between February 2018 and February 2020, the US economy would then have about 5.6 million additional jobs.

“Even though we will be back to pre-pandemic employment levels this year, we will still be below the pre-pandemic trend,” said Robert Frick, business economist at Navy Federal Credit Union. “Of course, risks abound, especially if inflation remains elevated, forcing the Fed to raise rates significantly and cooling the economy.”

Job creation forecasts have slowed over the past four survey periods. In the first quarter of the 2021 survey, economists expected employers to add 376,000 jobs between March 2021 and March 2022.

“Job growth over the next 12 months will look more like previous expansions compared to the past year and a half,” said Scott Anderson, executive vice president and chief economist at Bank of the West. “The easiest job gains to reopen are now behind us.”

Part of the reason job gains are expected to slow is that the labor force remains historically small. Employers have had near-record job openings for 13 straight months, and the job fill rate is at an all-time low, according to Labor Department data.

Part of this is linked to what experts call a “great reshuffling” of work, with the share of employed workers leaving their jobs at a near record high. Experts say they are likely changing jobs due to a labor shortage, given labor force participation is at its lowest level since 1977.

“The labor market is extremely tight,” says Kathy Bostjancic, chief U.S. economist at Oxford Economics. “For employment to continue to grow, the labor force participation rate must increase.”

Employers are already raising wages to attract more workers. Business payroll and labor costs jumped 5% in the year to December 2021, after climbing 2.8% the previous year.

Higher wages could spur people back to work, but so could inflation, which has put significant financial pressure on Americans’ purchasing power after rising at the fastest rate in 40 years.

As the labor force grows, employers may not have to fight as hard to attract more workers, while higher interest rates could also dampen job creation and economic growth. Economists say job seekers should have no trouble finding a new job by this time next year, although they may not have as much influence, which means job growth. slower wages.

“The gradual return of power from job seekers to employers may be accelerated by the economic uncertainty caused by the war in Ukraine and the Fed’s battle with inflation, as people tend to retreat and have less courage to quit when economic stress increases,” says Joseph. Mayans, director of the US economy at Experian.

Hear from the experts

Methodology

The First Quarter 2022 Bank Rate Economic Indicators Survey of Economists was conducted from March 17 to 25. Survey requests were emailed to economists across the country, and responses were voluntarily submitted online. Responding were: Ryan Sweet, senior director of economic research, Moody’s Analytics; Yelena Maleyev, Associate Economist, Grant Thornton LLP; Odeta Kushi, Deputy Chief Economist, First American Financial Corporation; Lawrence Yun, Chief Economist, National Association of Realtors; Robert Spendlove, Senior Economist, Zions Bank; Robert Hughes, Senior Fellow, American Institute for Economic Research; Joseph Mayans, Director of US Economics, Experian; Mike Fratantoni, Chief Economist, Mortgage Bankers Association; Bernard Baumohl, Chief Global Economist, The Economic Outlook Group; Scott Anderson, Executive Vice President and Chief Economist, Bank of the West; Bernard Markstein, President and Chief Economist, Markstein Advisors; Scott J. Brown, Chief Economist, Raymond James Financial; Mike Englund, Chief Economist, Action Economics; John E. Silvia, Founder and President, Dynamic Economic Strategies; Kathy Bostjancic, Chief US Economist, Oxford Economics; Bill Dunkelberg, Chief Economist, National Federation of Independent Business; Tenpao Lee, Professor of Economics, Niagara University; Robert A. Brusca, Chief Economist, Fact and Opinion Economics; and Robert Frick, Business Economist, Navy Federal Credit Union.

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