The labor market is now "bed rotting"
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Illustration: Sarah Grillo/Axios
No hiring. No firing. No switching jobs. No higher salaries.
"The labor market is 'bed rotting' right now," Ed Al-Hussainy, rates strategist with Columbia Threadneedle investments, tells Axios, referring to the viral term for staying in bed all day doing nothing.
Why it matters: The longer the labor market naps, the harder it will be to wake it up, which could cause problems for the economy and for the stock market.
What they're saying: The labor market's muscles are starting to "atrophy," Al-Hussainy says, adding that it can only stay in bed doing nothing for so long "before you have either bigger issues, or you get out of bed and you go for a walk."
- "It's not clear which way things are going to break," he says.
State of play: In lieu of federal jobs data during the shutdown, private data is the star of the show. The latest ADP report indicated jobs were shed from the economy in August and September, while economists expected jobs would be added, albeit at a slowing pace.
- In the latest Federal Reserve meeting minutes, members "emphasized rising downside risks — including from lower immigration, demographic trends and the potential labor-displacing effects of AI adoption," Gregory Daco, chief economist at EY-Parthenon, writes in a note.
The intrigue: Can't the Fed just cut rates to jumpstart hiring?
- That can be tricky, especially when coupled with sticky inflation. If the Fed were to drop interest rates significantly to kick up hiring, that leaves policymakers little room to trim if a bigger economic zombie appears: a recession.
Zoom out: These labor market problems "metastasize" and "continue to get worse, until they reach a tipping point where consumption starts to degrade, and then you have another recession scare," Al-Hussainy says.
- It took more than a decade for the labor market to recover from the global financial crisis, for example. Even in the recovery, many were left in jobs they were overqualified for, which created a "decade of lost productivity."
- "A lot of those elements are in the air today," Al-Hussainy says.
Yes, but: A recession is not his base case and is not the consensus on Wall Street. Indeed, several strategists tell Axios they see the economy growing from here.
- For investors concerned about the macro outlook, this is a good time to diversify and look for exposure to undervalued pockets of the market, including international equities, says Kristina Hooper, chief market strategist at Man Group, who sees the economy entering a "rolling recession."
What we're watching: Whether low hiring turns into layoffs. Historically, this starts in small businesses, then works its way up to larger companies.
The bottom line: As San Francisco president Mary Daly recently told Axios, "consumer spending is built on the strength of the labor market."
- That strength may require an alarm nudging the job market to wake up.
