MNI INTERVIEW: Fed's Fujita Sees Signs of Jobs Soft Landing

Unusually low job loss rates and unemployment insurance filings put the U.S. job market en route to a soft landing, in which inflation calms without putting millions out of work, Philadelphia Fed economist Shigeru Fujita told MNI.

The labor market has loosened noticeably as interest rates near their cycle peak. Vacancies have fallen by nearly 2 million since the start of the year. The quits rate -- the ratio of resignations to employed that serves as a measure of workers’ willingness or ability to leave their jobs -- has drifted down to pre-pandemic highs around 2.3% from a peak of 3.0% last year. And hiring has slowed to a three-month moving average of 150,000 a month, less than half of what it was in January.

"Layoffs are not increasing at all. It’s a good thing but I am very surprised that hasn’t changed. The job loss rate -- the monthly transition from employed to unemployed divided by total employed -- is still very low. And initial jobless claims is also very, very low. These are indications of a soft landing," Fujita said in an interview.

Employers have been holding onto workers even as the economy is expected to slow. "If the economy deteriorates quickly, there would be no choice but to let workers go. That hasn’t happened." (See: MNI INTERVIEW: Labor Hoarding Improves Odds Of US Soft Landing)

FLOWS DATA

The unemployment rate has edged up to 3.8% but is still near 50-year lows, and wage growth remains firm. Yet among the many signs that the labor market is cooling, the monthly measure of the flow of people coming from outside the labor force to unemployment rather than straight to a job is slowly increasing, Fujita noted.

"The chance of being in the unemployment pool is small but clearly ticking up. The job finding rate which is strongly procyclical was pretty high throughout pandemic and is coming down gradually," he said.

Wage growth is easing as well. The monthly flow of workers from employer to employer without any periods of being unemployed has stayed high but is coming down as the economy slows, Fujita said.

"Wages tend to go up when you switch jobs. If that transition rate is coming down, that would indicate less wage pressure. The slowdown is very gradual, just like the wage growth slowdown has been very gradual. Still, there’s a clear slowdown."

IN TRANSITION

Employers are also having an easier time hiring as labor participation rebounds, expanding the supply of available workers. Prime-age participation has recovered to its pre-pandemic levels while the gap in the overall participation measure can be explained by the aging of the population and is unlikely to breach 63% again, Fujita said.

People who were unwilling to work during the pandemic because they had to take care of family members or the ill are now getting back to normal. A reversal of the wealth effect of stimulus checks -- now spent -- is also helping push in that direction, Fujita said.

Whenever the unemployment rate and labor participation rate move in the same direction, the economy is likely in transition, Fujita said. "The economy might be going still, but you see the signs of a slowdown. It's not like a recession is imminent. So the current situation could be the soft landing that we’re hoping for."