The downtrend in consumption is a result of consumers facing higher costs with less money in their wallets. These dynamics augment the importance of incoming labor data this week, as consumers’ disposable income has been primarily supported by continued stability within the labor market.
Last week, markets received disappointing news regarding the state of the economy. GDP, which already surprised to the downside at 1.6% last month, was further revised downward to 1.3%. Both of these disappointing GDP estimates were driven by reduced consumption, which generally comprises 70% of economic activity, and has constituted the X-factor behind the economy’s overall resilience against tightening economic conditions over the past year.
Consumers have become wedged between a rock and a hard place. On one hand, inflation has enabled prices to accelerate faster than the ability of consumers to adjust to them. On the other hand, the Fed still views inflation because of excess consumption, so it is raising interest rates to discourage spending. Normally, consumers face pressure from either inflation, interest rates, or some moderate combination of these two conditions. Unfortunately, inflation has exhibited significant persistence due to factors outside the Fed’s control, such as geopolitical tensions which have elevated energy prices, as well as lingering supply chain issues which have hindered starts within the housing market, which has pushed the Fed to postpone rate cuts till later this year.
Therefore, the downtrend in consumption is a result of consumers facing higher costs with less money in their wallets. These dynamics augment the importance of incoming labor data this week, as consumers’ disposable income has been primarily supported by continued stability within the labor market. Should the data reveal an emerging contraction within the labor market through reduced payrolls or increased layoffs, as well as a slowdown in wages, the Fed could soon face a conundrum of its own: maintain pressure on inflation at the risk of a potential recession, or reduce interest rates to save the economy from a broader slowdown despite elevated price growth.
These data points should help soothe fears of a slipping job market as the economy heads into the second half of the year.
A survey of successful job seekers fielded by Resume Builder earlier this month found the overall job market to be more resilient than many would expect. Among the most notable findings, one quarter of successful job seekers landed a role within only one month, while 72% reported submitting applications to 10 or fewer jobs.
As shown by last week’s WEBO, this survey comes at a time when nearly half of U.S. workers are not confident that they could find a new job within three months. Yet, 70% of successful job seekers surveyed by Resume Builder did manage to do so within that timeframe and in addition, there remains 1.5 million more total job openings today than the pre-pandemic baseline of March 2020 according to BLS. These data points should help soothe fears of a slipping job market as the economy heads into the second half of the year.
Recording the time needed to find a new job can be a useful temperature check for labor demand in different sectors, as a rapid acceptance rate would suggest a more limited pool of available applicants. Staffing professionals should keep this information in mind when persuading talent to seek new opportunities, as well as for gauging the true direction of the labor market in making business decisions.
The ASA Weekly Economic & Business Outlook (WEBO) is powered by an online dashboard and features analysis and insights designed to drive strategic business decisions. Stay ahead of trends, maximize your business agility, and be ready to act on opportunities. The ASA research team, including Chief Economist Noah Yosif and Assistant Director of Research Tim Hulley, deliver timely insights as well as weekly videos called “Staffing in 60 Seconds.” Check out the ASA WEBO and sign up for email delivery. More ›
Paycheck Pain: 53% of U.S. Workers Feel Their Paycheck Is Not Keeping Up With Inflation More than half of U.S. workers (53%) feel their paychecks are not keeping up with the pace of inflation, according to a new ASA Workforce Monitor® study from the American Staffing Association and The Harris Poll. Nearly four in 10… More ›
