The U.S. job market is poised for a rapid slowdown as economic growth cools, Goldman Sachs warned in a new report.
“We continue to expect that the slowing economy will lead job growth to fall sharply to 150k/month in 2022H2 and to 60k/month in 2023, causing the unemployment rate to gradually rise to 3.8% at end-2023 and 4.0% at end-2024,” Goldman Chief Economist Jan Hatzius said. “We see risks around this forecast as two-sided, reflecting elevated risk of a recession that would cause greater labor market damage, but also the possibility that very high labor demand might limit labor market deterioration.”
The path outlined by Hatzius would be a stark change of pace: The U.S. economy created 372,000 jobs in June while the unemployment rate held steady at 3.6% last month; those robust numbers followed job gains of 384,000 and 436,000 in May and April, respectively.
But with the Federal Reserve aggressively hiking interest rates to tamp down inflation and slow the economy, businesses have begun to rein in hiring.
Big tech companies such as Alphabet and Meta have started to delay hiring after years of breakneck growth, pressured in part by declining stock prices, while Tesla and Netflix have recently had rounds of layoffs as their execs hunker down.
U.S.-based employers announced 32,517 job cuts in June, a 58.8% increase year over year, according to a report from outplacement services firm Challenger, Gray, and Christmas. Layoff announcements spiked 57% from May.
“Signs of the slowing economy should show up in payroll employment soon, however, since job growth typically tracks economic activity very closely and statistical estimates imply a front-loaded employment drag,” Goldman’s Hatzius added. “Slower activity already appears to be weighing on hiring to some extent, since employment growth slowed more in states where spending softened in May.”
Hatzius doesn’t see the economy tipping into recession, however: The economist projects GDP growth of 1.4%. in 2023
By Brian Sozzi