[New York Diary] Is the U.S. Labor Market Still Hot?

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"The labor market has become employer-centered again." A senior official in the financial sector recently made this assessment of the U.S. labor market in a private conversation. Although U.S. employment indicators, including the increase in new jobs, still show a solid level exceeding expectations, the atmosphere on the ground has clearly changed.

According to the data, the U.S. labor market is considered strong enough that the cumulative effects of monetary tightening so far are difficult to confirm. Companies complaining about labor shortages and the trend of wage increases to secure talented personnel continue. The unemployment rate remains historically low at around 3.7%, contrary to initial forecasts that it would surge around this time of year. Last week, new unemployment claims even decreased compared to the previous week, despite the year-end and New Year effects.

However, compared to two years ago and one year ago when the Federal Reserve's (Fed) aggressive tightening was ongoing, the employer's bargaining power on the ground has already shifted back to the companies, this official diagnosed. He said, "There is a noticeable change in the labor market structure. For example, resumes are pouring in even for relatively unfavorable conditions," adding, "For companies, hiring has become easier." Another big tech insider also evaluated, "After several years of large-scale layoffs in the industry, the atmosphere is distinctly different from when the sector was rapidly expanding." Various new terms that once indicated labor shortages, such as 'The Great Resignation' and 'quiet quitting,' have faded, and since the second half of last year, the term 'quiet cutting' has emerged, which is not unrelated to this atmosphere.

The chill of corporate layoffs continues even after the new year. Alphabet, Amazon, and others are representative companies that started layoffs early this year. Amazon, which announced layoff plans for Prime Video and other divisions last week, is estimated to have laid off more than 27,000 employees from 2022 through the end of last year. According to Layoffs.fyi, which tracks layoffs in the IT industry, 4,541 employees from 27 companies have been laid off so far this year through January 11. Last year, 262,682 people lost their jobs across 1,186 companies. There is hardly any active new hiring among these. Economic media CNBC reported, "As news about layoffs and recession fears dominate headlines daily, many companies have also reduced new hiring."

Accordingly, the analysis that the actual U.S. labor market is not as hot as expected is gradually gaining traction. Recently, MarketWatch focused on the background of the gap between indicators and the field, diagnosing it as a "chronic overestimation." The media cited the extreme example of the Labor Department announcing 209,000 new jobs in June last year, only to revise the final figure down to 105,000 later. They explained that clear limitations were confirmed due to low initial survey response rates. The preliminary survey response rate used for initial indicator calculation was around 50%, but the final revised response rate exceeded 90%.

Some time lag is inevitable in the calculation methods of various indicators. However, this is precisely why many economists, including Moody's, have warned to carefully examine initial indicators when analyzing employment reports and other economic data. The Fed is preparing for a full-scale monetary policy shift this year. Whether it will be over-tightening or under-tightening, amid growing uncertainty, the Fed, which certainly does not want policy mistakes, cannot ignore the gap between the data and the actual sentiment on the ground.

This content was produced with the assistance of AI translation services.