White Hot to Stone Cold: What’s in store for the (hiring) economy?

Some economists argue that the Fed’s own forecasts—where they’re able to lower inflation, keep the economy from entering a recession and limit labor-market damage—are a fairytale.

Pick your poison: the expectation of all three may not be realistic.


“The Fed’s forecasts are still remarkably optimistic,” William Dudley, former New York Fed president and an adviser to Bloomberg Economics, said in a recent Bloomberg Television interview. “The risk is that the Fed’s going to have to cause more pain. And it would be better for the Fed to be more forthcoming about that.”


Inflation is expected to remain high later this year even as the economy slows, and layoffs rise. Already, signs of financial stress are surfacing.


Despite an unexpectedly strong May jobs report, estimates from the National Federation of Independent Business suggest that the labor market might be on its way to cooling down. NFIB’s compensation plans index fell to 25 percent from its peak in December 2021; in other words, 25 percent of business owners, in aggregate, plan to increase wages in the next 3 months—still a lot, but lower than their plans just a few months ago.


At the same time, the labor quit rate—which counts the number of workers voluntarily leaving their job for another job—appears to also be coming off its peak. This indicator suggests that workers are increasingly satisfied with their job (or are just willing to live with it and not rock the boat).


Employees may also not be seeing as many opportunities in the labor market as they had before. These metrics, from both the supply and demand sides of the labor market, suggest that the historically strong labor market might be reaching an inflection point and beginning to weaken.


All things considered; this cool-down might be welcome news for central bank policymakers seeking to tame wage-push inflation. It’s also probably welcome news for hiring employers, who are feeling the squeeze of higher labor costs.


However, if the trifecta of what the Feds hope won’t happen, happens…and the winds of change start blowing (again!), do you have the right leadership in place to weather it out?


Whether or not a storm directly hits, now is the time to start preparations.

 

Greg Mickelson is a Principal of Standish Executive Search, a New England-based firm that advises business owners, executives and boards who are positioning their companies for accelerated growth, change or succession.

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