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‘Whiplash’: Economists Warn Labor Market Is Next Victim of Inflation

  • The labor market is beginning to cool, as the number of job openings fell in June and labor force participation remained lower than pre-pandemic levels.
  • Economists predict that the number of job openings will continue to decline, as inflation and expected changes to the tax code may pressure some companies to begin layoffs.
  • Initial jobless claims reached their highest levels in June since November 2021

The number of job openings fell well below 11 million in June as the labor market begins to cool from record demand for workers in yet another potential sign of recession.

The total number of job openings fell to 10.7 million in June, with 6.4 million hires and 5.9 million separations, which includes all reasons an employee may leave a company, according to a Bureau of Labor Statistics (BLS) report Tuesday. Economists told the Daily Caller News Foundation that the figures were an ill omen, fearing inflation and proposed changes to tax policy would lead to layoffs and reduced demand for workers.

“We are now in the early stages of a whiplash effect,” E.J. Antoni, a research fellow and economist at The Heritage Foundation, told the DCNF. “Employers are still scrambling to hire workers but will soon have to stop hiring and then begin layoffs; some firms have already started this move, but it’s not widespread yet.”

“Consumers are running out of disposable income as prices continue rising,” Antoni said, noting that as consumers cut back on spending due to inflation, businesses will need fewer employees, leading to layoffs. Small businesses are already feeling the effects, with job openings at small businesses “reaching their lowest levels since September 2021,” Antoni said.

Wages increased 5.1% in the second quarter compared to last year, as companies try to retain and attract workers, The Wall Street Journal reports. Adjusted for inflation, incomes fell 0.3% in June compared to last year, the DCNF reported.

The decline in job openings is just the latest indicator showing a softening labor market,” Alfredo Ortiz, President and CEO of the Jobs Creation Network, told the DCNF. Ortiz also noted that the low unemployment rate does not reflect the fact that labor force participation has been declining, and that if those on the “workforce sidelines were considered unemployed, the unemployment rate would be dramatically higher than today’s rate suggests.”

There were 5.9 million unemployed people looking for work in June, representing an unemployment rate of 3.6%, which has been consistent since March according to a July BLS report. The labor force participation rate in June was 62.2%, down 1.2% from Feb. 2020, but consistent with recent months, according to the BLS.

“If Senate Democrats succeed in passing their proposed massive tax hike on businesses and ordinary Americans, this labor market cooling will turn into a freeze and even the topline unemployment rate will be significantly impacted,” Ortiz told the DCNF.

The number of job openings peaked in March at 11.9 million openings, according to the WSJ. In July, initial jobless claims, a common proxy for layoffs, reached their highest levels since November 2021, indicating that while the number of job openings remains historically high, the labor market may be slowing, according to the WSJ.

The increase in claims represents “some pretty serious weakness in the labor market, and potentially a signal for a recession coming in the future,” Dante DeAntonio, an economist at Moody’s Analytics, told the WSJ.

A weakening labor market also makes workers more likely to hold onto their jobs, as fears of a recession mount, DeAntonio told the WSJ. 50,000 less people quit their jobs in June compared to May, according to the BLS.

The BLS will report employment data for July on Friday, according to The Wall Street Journal.

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