MNI INTERVIEW: Labor Cracks To Drive Fed Cuts- Staffing Group

The U.S. job market is weakening under pressure from the Federal Reserve’s high interest rates and the resulting slack will allow policymakers to cut borrowing costs twice this year, American Staffing Association Chief Economist Noah Yasif told MNI.

“We're projecting the first cut to come towards the tail end of the summer, then we’re also looking at one towards the end of the year,” he said in an interview, adding that if conditions warrant the second move could be a 50-basis point cut.

That would still keep that 75 basis points of cuts officials projected in their last Summary of Economic Projections in March. Since then, additional hot inflation data has raised doubts about the Fed's rate cut timeline. (See MNI INTERVIEW: Fed Will Cut Rates More Sparingly In 2024-Weber)

Payrolls growth slowed to its weakest level in six months in April as the economy generated 175,000 new jobs, and average hourly earnings slowed to 3.9% in April from 4.4% in January. Weekly jobless claims rose to an eight-month high last week.

“The labor market and consumption are experiencing some fatigue from elevated borrowing costs,” said Yosif, previously an economist at the U.S. Department of Labor's Bureau of Labor Statistics who also worked at Treasury.

SEEING CRACKS

As the period of 23-year high interest rates lingers for longer than previously expected, employers have become increasingly shy about posting new jobs. “When there are these higher borrowing costs, we are going to see less job openings,” said Yosif.

Waning support from fiscal policy is also a reason the growth outlook is not as robust as it looks, he said. First-quarter GDP slowed to 1.6% but the underlying growth pace is still seen by most economists as above trend.

“The economy has used up all of those are pandemic era savings,” said Yosif. "That is why we are now starting to see more cracks."

The job market has stayed more resilient than most economists had expected despite Fed tightening because the post-pandemic scramble for labor led employers to hoard workers, he said. While that instinct is still lingering there are renewed signs of activity in the temporary employment industry signaling managers have become more selective.

“We believe the staffing industry might have hit a bottom," he said. "As economic conditions begin to ease, primarily based on what the Fed does, we might be able to see an uptick in demand for staffing.”