opinion | Goldilocks Economy: Trying to Get It ‘Right Right’

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As anyone who has ever eaten a chocolate fudge can attest, it is possible that you have too much of a good thing.

This is true for a really rich dessert – and also for a really strong (or hot) job market.

When it comes to hiring, it’s nice that there are plenty of jobs for workers – especially workers who don’t usually have much bargaining power. It is a good thing for employers to offer higher wages, especially for lower paying and less desirable jobs. It’s a good thing companies post a lot of job opportunities, especially when you’re almost 22 million jobs They were destroyed very early in the pandemic.

Recently, like in May Jobs Report Released on Friday Shows, we’ve had these goodies in spades.

We are now close to filling the deep jobs gap created by the pandemic. If the pace of employment growth continues in May (390,000 jobs added), we will return to the pre-pandemic employment level in another two months or so. can happen Much faster than anyone expected (almost).

Once again, a good thing! Especially compared to the painfully slow recovery after The Great Recession.

While we want a hot economy and a hot job market, there is also what is called “overheating”.

This can happen, for example, because consumers have tons of cash to spend, and they want to spend (again, usually good stuff) – but suppliers can’t keep up with super-strong customer demand for goods and services. They do not have the ability to expand quickly enough. A mismatch can lead to rapid price hikes and product shortages. It can also manifest itself through a shortage of workers, if companies are trying so hard to expand that they want to hire more people who are able or willing to work.

This was roughly the case last year: since May 2021, more job vacancies have been announced at the end of each month than there have been unemployed workers actively looking for jobs. In April 2022, the latest month for data, there were about twice as many job opportunities as unemployed workers.

So even if every unemployed worker suddenly gets a job, there are still plenty of jobs that are begging.

One of the risks in such a situation is a spiral wages. This happens when companies chasing scarce labor decide to raise wages (again, usually good), but the resulting higher labor costs cause companies to raise the prices they charge their customers. This in turn drives workers – who are of course also consumers – To demand larger increases, which leads to higher prices, etc.

There were some discussion About whether we might be headed toward (or we really are) in one of these creepy snails. There has also been discussion about whether the Fed needs to act more aggressively to break or prevent such a cycle — specifically, by raising interest rates more sharply than it already does.

who – which It will have the effect of making borrowing more expensive, thus limiting spending; But historically, it has also led to a recession.

In April, Federal Reserve Chairman Jerome H. Powell Referred to to the labor market as “too hot. It is unsustainably hot.” “Our job is to move it to a better place where supply and demand are closer together,” he added.

But that doesn’t mean he wants employment or economic growth to stop, or for the economy to collapse. What he and other policymakers have been looking for – what could help them avoid having to raise interest rates even more sharply – is sometimes called a “moderate” economy: neither too hot nor too cold.

Powell and others acknowledged that getting and staying on this “absolutely right” path will be difficult, but at least based on Friday’s jobs report, there is cause for optimism.

The report showed that job growth was solid, but slightly slower than in April. Wages (at least in nominal terms, before inflation) are increasing, but not accelerating – if anything, they may slow down touch. The report was “good but not gangsta”, like Politico Put it right.

And the more encouraging, the more Americans who were previously sitting on the sidelines entered the workforce in May.

Hopefully, this means that vacancies can be filled more quickly. This, in turn, means that companies can ramp up production – whether from household appliances, building materials, restaurant meals, or anything else – to meet the constant demand of customers.

Sure enough, that’s one month of data. There is still a lot of Risks to the economy In the next year or so. These are driven by a combination of Unlucky bumps (War and resulting disruptions in energy and food markets; pandemic variables and related factory shutdowns; bird flu; drought; who else knows what) — as well as the (still unknown) ability of the central bank to smoothly calibrate its response. Raising rates is just enough, but not too much.

Certainly a few Goldilocks reports like the May report would be welcome.