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Tuesday, February 7, 2023

Goldman revives US soft landing theory, but there are fractious employment data that calls it into question

Uncertainty about the future of the US economy revolves around employment. While the monetary policy roadmap appears to be having an impact on inflation and, with it, wages, unknowns remain about the labor market and cast doubt on the most optimistic forecasts. Goldman Sachs has broken the spear in favor of a soft landing for the US economy. Here are three facts that call into question whether the Fed can tame inflation without hurting jobs.

The October inflation data in the US had two implications. on the one hand they gave wings for bags, given that the Fed is close to hitting the brakes on raising rates. and on the other hand, he opened Hope the economy doesn’t crash into a deep recession, The result of both approaches is that Powell can manage to square the circle and obtain soft landing for the economy,

The soft landing principle arises when an imbalance in the business cycle makes a decline in GDP inevitable in order to restore equilibrium. The question always arises whether the blow will be sharper or softer, whereas Governments and central banks try to make it as painless as possible,

With most indicators pointing to a recession for the US, Goldman Sachs is the first major Wall Street firm to distance itself from the consensus and buy into the idea of ​​what the market has felt in recent weeks: America will survive the recession and employment will hardly be hurt by the change cycle.

Since the end of the pandemic, the US economy has not ceased to amaze, most of all, labor market strength, great resignation This is just the tip of the iceberg of the overheating economy, which is reflected not only in prices, but also in employment.

It hasn’t suffered in the slightest, not even when the economy entered a temporary technical slump. no matter how small Recession periods in recent US history have always been accompanied by increases in unemployment., The unemployment rate held steady at full employment in the last quarters of the decline and doesn’t appear to be faltering until 2023. “Overheating has not turned its face with excessive employment, but with unprecedented levels of resolutions,” he explains.

American economy opened between 2020 and 2021 With the rapid increase in job offersAmid ongoing fears of Covid-induced shutdowns and extraordinarily generous unemployment benefits.

Employment levels and the labor force returned to pre-pandemic figures due to a rapid economic recovery, but, according to the Havre Analytics database, Job offers reached 104% of the total number of workers willing to work,

Unemployment will barely exceed 4%

The gap between the available jobs and the total labor force, the active population, According to Goldman’s calculations, six million unfinished deals have been reached., This cushion, the additional job offering, explains why the labor market is accepting a 400 basis point increase in rates without destroying jobs.

For Goldman, the excessive supply of jobs suggests in part that the Fed will manage to tame inflation, with hardly any increase in unemployment. The unemployment rate would increase by only 50 basis points. That is, it will be very little more than 4%.

Goldman’s macro analysts’ base scenario is that after the Fed pushes rates into a range between 5% and 5.25%, core inflation falls to 2% from the current 5% at the end of the year. Currently, they range between 3.75% and 4%. And all this while the economy grows at an annual rate of 1% through 2023 without any recession.

deflationary pressure

Not only the employment factor will contribute to the smooth adjustment of the economy. Goldman points to unforeseen deflationary forces in other periods. ,Fixing supply chains and fixing inventory levels should put downward pressure on basic commodity prices”, they comment in the report. The real estate market will also stop exerting pressure on prices and assert that “The price of new leases has dropped sharply“Inflation data should reflect these aspects, starting in the spring, post-pandemic surge. Experts point out that inflation expectations are well stabilised.” The pandemic also suggests that high inflation is not the case,” he explains.

But there are three fragmentary pieces of information in Goldman’s soft landing equation that cast doubt on the investment bank’s theory and whether the Fed’s road map is correct. Both indicators of the labor market open the door for it to be used more thoroughly, leading to a recession, which hurts employment even more than inflation, when it starts showing signs of abating.

The first is vacancy data published by the US Bureau of Labor Statistics, which shows that the ‘overheating’ of the US labor market is still far from abating.

really, Jobs to be filled (10.7 million) are almost twice as many as unemployed (5.7 million) with a ratio of 1.9, This is another important piece of information, as Fed Chairman Jerome Powell’s stated target is to reach 1.

The investment bank has also accepted in its report that there is a need to reduce vacancies, but its estimates are a bit over-optimistic. Goldman uses a proportion of job offers aggregated by LinkUp and Indeed job portals and Jobs.

The gap reached six million unfilled offers when, at the end of 2021, it reached 104% of the workforce, Nearly a year later, it now stands at 4 million offers to cover the gap following a slowdown in the economy’s internal demand, the disappearance of generous unemployment benefits and a drop in excess savings.

Goldman analysts say the spread still needs to narrow to 2 million open bids for prices to move toward inflation targeting. For the experts of the firm, Excess supply of jobs well above full employment means strong wage growthinconsistent with the decline in inflation.

And it is that labor market dynamics in the United States translate into wage negotiations with greater intensity than in other countries. If companies fight for workers, they may demand higher wages, which in the long run leads to a “second round effect” scenario that the Fed wants to avoid at all costs by idling the vacancies.

And it’s happening in principle: The Atlanta Fed’s index of wage growth and the US Bureau of Labor Statistics’ labor cost data show a slowdown in wage growth and wage costs in the third quarter.

But the jump in vacancies and the rate of jobless offers has turned many analysts on the upside. And it soothes the optimism of those who hoped that the rate hike was already cooling down the so-called ‘Great Resignation’, that it would allow the US central bank to start taking it a little more calmly.

discord data

This development is not so surprising if we take into account the persistence of a third piece of data in dispute: worker resignations, which remained at an all-time high in August despite a decline in vacancies. However, it registered a slight decrease in September, especially in the affected sectors, such as the hotel and catering industry.

In the ideal scenario described by Goldman Sachs and sought by the Fed, the cushion of an oversupply of jobs would not allow a downturn in the economy to hurt employment. That is why the idea that the ratio of vacancies and the number of unemployed is the one indicator that should be subdued to really talk about the success of labor market intervention.

According to some analyses, reducing the vacancy rate to 2019 levels would mean raising unemployment to 5%, none of the half a percentage point Goldman forecast, slightly above 4%. Still, this is an acceptable margin for the Fed, which could go as far as 5% unemployment to rebalance the economy. But the latest data suggests that goal is still a long way off.

the problem is that for that to happen you have to be Cuts in workforce linked to great resignations and it doesn’t just depend on vacancies, But about the resignation. That is, the ability to leave a job for another with better conditions.

And it is generally assumed that reducing offers reduces turnover, but in the present scenario we are seeing that the figures of vacancies and resignations have diverged. This means that if companies hire less but fail to keep up with employee turnover, wages will continue to drive up costs and inflation.

This is just what happened in the quintessential overheated area in recent years: technology, A modest drop in offers over the past year hasn’t stopped workers’ volatility (each time they’re short on a position) and has finally led to a cascade of quick layoffs in recent weeks. While these companies have their own quirks, they seem like a warning to many to heed.

World Nation News Desk
World Nation News Deskhttps://worldnationnews.com/
World Nation News is a digital news portal website. Which provides important and latest breaking news updates to our audience in an effective and efficient ways, like world’s top stories, entertainment, sports, technology and much more news.
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