Quiver Quantitative - The U.S. labor market, a key indicator of economic health, is showing signs of cooling in 2024 according to several regional Federal Reserve bank surveys. These surveys, essential precursors to the government's monthly jobs report, suggest a notable reduction in hiring demand. This trend is set to temper wage growth and alleviate inflationary pressures. The upcoming jobs report is anticipated to reveal a December payroll increase of 170,000, with expectations for a reduced average monthly gain in early 2024.
In more detail, the Philadelphia Fed district's survey reflects one of the weakest levels of employment expectations among manufacturers since 2009. Similarly, the New York Fed's Empire State survey reveals a significant drop in service providers and manufacturers' hiring intentions. In Texas, as per the Dallas Fed surveys, about 30% of manufacturers and service providers consider their staffing levels ideal, a notable increase from earlier in the year. However, there's a rise in businesses that feel overstaffed yet are refraining from layoffs. The Richmond Fed reports a decline in factory employment expectations, aligning with the weakest readings since mid-2020.
Market Overview: -Regional Fed surveys reveal dampened hiring plans for 2024, anticipating less aggressive job growth. -Wage pressures expected to ease as labor market finds its equilibrium, alleviating inflation concerns. -December jobs report likely strong, but future forecasts point to a gradual slowdown in the new year.
Key Points: -Fed's interest rate hikes impacting the economy, translating into reduced hiring appetite across various sectors. -Surveys from Philadelphia, New York, Dallas, and Richmond Feds showcase softening employment expectations. -While no mass layoffs are anticipated, the pace of job creation is predicted to nearly halve in the first quarter of 2024. -Wage growth, which soared in 2021 and 2022, projected to decelerate significantly next year.
Looking Ahead: December jobs report expected to remain solid, potentially offering a final hurrah for robust hiring. The coming year likely to see a slower jobs market, balancing labor supply and demand and moderating wage pressures. This shift may provide relief on the inflation front but could also dampen investor sentiment in companies reliant on a booming labor market.
These regional insights suggest that the Federal Reserve's measures to decelerate growth and curb inflation are impacting employment trends. Although the data doesn't signal a sharp decline in job numbers, it points towards a labor market adjusting to a new equilibrium. Businesses continue to grapple with a shortage of skilled and experienced workers, but there's an emerging balance between labor supply and demand. Notably, the Dallas Fed forecasts annual wage growth, which soared to 7% in recent years, to slow to about 4.3% in 2024. This moderation in wage hikes is echoed in the Kansas City Fed’s district, where wage expectations have hit a three-year low.
In summary, while the U.S. labor market remains robust, a gradual cooling is expected as the Federal Reserve's policies start to take effect, leading to more moderate wage increases and a better alignment of labor supply and demand.
This article was originally published on Quiver Quantitative