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In the job market, how hot is too hot?

May 06, 2022 1:09 AM | DFW-ABA Communications (Administrator)

**Article from a Marketplace by Lily Jamali**


Friday’s jobs report shows the U.S. labor market is still hot, but there are signs that it’s slowing down a bit. Some economists say that might not be such a bad thing, counterintuitive as that might seem.

The U.S. is closing in on “full employment.” That’s when all the people who want to work, and can work, are working.

Economist Mark Zandi at Moody’s Analytics said that right about now would be a good time for job growth to slow down. “We’re creating a lot of jobs, so many jobs,” he said. Zandi expects the economy to reach full employment in the next few months before blowing past it.

“And that’s a problem. If you’re in a world of high inflation, you know, this would mean the economy will potentially overheat,” said Zandi. Inflation can get worse, he said, as workers demand higher wages to keep up with prices, a cycle that can feed on itself.

However, Friday’s job report shows wage growth slowing down. That’s a sign there might not actually be a labor shortage, said Kate Bahn, chief economist at Equitable Growth.

“The fact that Black unemployment is still nearly twice what it is for white unemployment. Women’s employment rates have plateaued,” Bahn said.

Bahn said that if the labor market were really so hot, “we would be pulling in those people who are typically facing barriers. And they’re not being pulled in as much.”

She thinks there’s still plenty of room for this job market to grow as it comes off years of income inequality and wages that have been stuck in a rut.

The labor market is still making up ground lost over the last two years, said Gus Faucher, chief economist at PNC.  

“We still are down by about 1.2 million jobs from where we were before the pandemic, so the labor market has not fully recovered,” Faucher said.

But better wages are helping draw workers back, especially prime-age workers between 25 and 54 years old, according to Joseph Brusuelas, chief economist at RSM.  

“And that in itself is a sign of a growing confidence among workers,” Brusuelas said.

He said that as the Federal Reserve raises interest rates, the economy will cool — and with it, hiring — which could help get inflation under control.

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