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Economic Commentary

Job market remains resilient as activity weakens across the economy

February 01, 2023
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Consumer activity slowed sharply over the last two months of 2022, suggesting little momentum entering the new year. Still, job gains remain solid as many businesses have yet to significantly slow hiring even as clouds build on the horizon. The strength of the job market should keep the economy from dipping into a recession in the near term; but job losses are likely later this year as still high input costs and reduced demand for their goods and services sap firms’ profits. Should labor conditions finally show some cracks, we expect the economy to contract by mid-year. That said, we foresee only a moderate and short-lived recession as relatively healthy balance sheets for most households and businesses buffer the downturn.

Key Takeaways:

  • Job gains were strong through the end of 2022 and the unemployment rate fell to a cycle low in December. Wage growth, while slowing, remains buoyant and supportive of household incomes.
  • A combination of inflation fatigue, higher borrowing rates, and diminished savings caught up with consumers as spending activity slumped to close 2022.
  • Inflation readings cooled further in December, but housing and services inflation continued to run hot, tempering the optimism generated by declining goods inflation. These factors should keep inflation elevated, even as it cools, over the next year.
  • The FOMC is expected to shift to smaller 25 basis points rate increases at coming meetings, but financial conditions should tighten further. Moreover, the Fed has projected that rates will remain restrictive into 2024 to guide inflation back toward its 2.0 percent target.

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