Consumers are feeling worse about the labor market outlook.
In June’s Consumer Confidence Survey, 29.2% of respondents said jobs were “plentiful,” down from 31.1% in May. Meanwhile, 18.1% of consumers said jobs were “hard to get,” down slightly from 18.4% in month prior.
These may seem like mere details, but this pushed the difference between the two — a closely watched sentiment reading called the labor market differential — to just 11.1 percentage points in June. That marked the lowest gap since March 2021, when the job market was recovering from the onset of the pandemic. Coupled with the surprise of the reading, expected to be strong, and it’s something of note.
The current situation is different than the so-called vibecession of 2022, where consumers felt worse about the state of the economy than actual data had shown. This time, consumers aren’t getting it twisted: There are clear signs of slowing in the labor market all over the place right now.
Weekly filings for unemployment are hovering at an eight-month high. In a sign workers are taking longer to find jobs, continuing unemployment claims are near their highest level since November 2021. The hiring rate is near its lowest level in more than a decade. And the outlook for certain cohorts of the labor market, like tech workers and new college graduates, is worse than before the pandemic.
“The lost momentum in the labor market is not lost on consumers,” Wells Fargo senior economist Tim Quinlan wrote in a note to clients.
The weakening labor market outlook helped contribute to the broad Consumer Confidence Index unexpectedly declining in June after a large May bounce back. But perhaps even more importantly, it’s also one reason why some are clamoring for the Federal Reserve to consider cutting interest rates soon.
In a speech on June 23, Federal Reserve governor Michelle Bowman noted that while the labor market is showing signs of strength, it “appears to be less dynamic.”
“With inflation on a sustained trajectory toward 2%, softness in aggregate demand, and signs of fragility in the labor market, I think that we should put more weight on downside risks to our employment mandate going forward,” Bowman said.
But with seven officials forecasting no interest rate cuts this year and eight penciling in two cuts, there’s clear debate about whether rising inflation or a weakening labor market will drive the Fed’s policy decisions over the next few months. While testifying in front of House lawmakers on Tuesday, Fed Chair Powell stressed the central bank is “well-positioned to wait” before moving interest rates.
Powell cited wider-ranging metrics like the national unemployment rate at 4.2% and an average of 124,000 nonfarm payroll gains through the first five months of the year to describe labor market conditions as “solid.” And it’s hard to argue that.
But the argument for the Fed to cut sooner rather than later isn’t about the broad-ranging metrics flashing warning signs. If that were the case it wouldn’t be an argument. Just look back to the Fed’s jumbo half percentage point interest rate cut last September that came after a string of weak labor data.
Instead, the key concern some economists have about the economic outlook is being expressed by slowing on the margin and the fear those data points could be pointing to something worse.
As Renaissance Macro head of economics Neil Dutta wrote in a note to clients on Tuesday, “I follow what consumers tell me about the jobs market since they tend to lead the actual data.”
A compelling argument.
