Axios Macro

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Tomorrow at 8:30am ET, we get the all-important July jobs report, a first look at whether the labor market started to lose steam last month.

But today, we'll look at a surprising reason why the job market may hold up better during this slowdown than in the past.

  • Plus, some horrible projections (and another rate hike) out of the Bank of England. 🇬🇧 📉

Today's newsletter, edited by Javier E. David, is 656 words, a 2.5-minute read.

1 big thing: Labor hoarding may keep the job market strong

Illustration of an upward trend line over a group of people, with others in the background grayed out
Illustration: Annelise Capossela/Axios

The strong labor market continues to be the economy's bright spot. There's reason to believe it could hold up even as the economy slows, if businesses hoard workers to avoid repeating past mistakes.

  • Employers who have struggled with labor shortages may be more wary than usual of laying people off, even as demand slows.

Why it matters: If employers keep people on their payrolls, it would make the economic slowdown milder and less painful for workers than recent recessions.

What they're saying: In recent earnings calls, some employers have said they are hesitant to reduce headcount, even as growth deteriorates.

  • "It's been challenging, frankly, to be out in the hiring market in this ride-up in the last couple of years," Chris Gorman, CEO of bank holding firm KeyCorp, told analysts. That's why the company, in certain areas of the business, will staff up more "in sort of a flat or down" environment than they have in the past.

By the numbers: In June, only 1.3 million were laid off or discharged from their jobs, according to government data. That number averaged 1.8 million in 2019, suggesting employers are more reluctant now than they were then.

Between the lines: Most analysts believe any recession will be mild, says James Knightley, an economist at ING. Companies "will be reluctant to fire staff that they may end up having to recruit back maybe six months later."

That’s what happened at the onset of the pandemic. Perhaps fearing that the pandemic recession would be a painful slog like the financial crisis aftermath, companies let workers go quickly — only to face a rapid economic comeback without enough workers to meet the demand. Businesses may not want to repeat that mistake.

  • "A long, painful recession delivers one set of reactions, while a very short recession delivers another," says Julia Coronado, founder of economic research firm MacroPolicy Perspectives.
  • "The scarring this time might be that employers are inclined to hoard labor. They may say 'we're going to sacrifice a little bit of margin and not cut costs so aggressively' because it was really painful to spend a year and a half re-staffing."

Where it stands: Since the pandemic hit, Coronado has been tracking hiring actions expressed by publicly-traded companies on quarterly earnings calls.

  • In the most recent quarter, roughly 18% say they are still adding workers, while just 3% are talking about layoffs. (The rest haven't specified.)

What's next: The latest snapshot of the labor market tomorrow is expected to show the economy added a healthy 260,000 jobs last month, a quick (though slower) pace.

2. No soft landing here

Tourists outside the Bank of England on Thursday. Photo: Hollie Adams/Bloomberg via Getty Images

The Bank of England delivered a stark warning about what’s likely ahead for the U.K. economy: a drawn out recession and persistently higher inflation that continues to erode Britons' incomes.

Why it matters: It’s perhaps the most dire outlook from a major central bank yet. BoE governor Andrew Bailey is deviating from global peers who have been more balanced about the possibility of a recession.

  • The warning came as the central bank announced it would lift interest rates again by a half-percentage point, the most since the Bank of England won independence in 1997.

Between the lines: Some of this gloomy outlook reflects the same problems affecting the whole world, particularly energy and supply shortages tied to the post-pandemic reboot and Ukraine war.

  • But those problems are also exacerbated by Britain's decision to cut itself off from the European Union. The disruption to commerce is, in part, paying the piper for Brexit.

By the numbers: The BoE warned a recession could begin in the final quarter of this year and last through 2023, with the economy poised to shrink by 2.1%.

  • Officials expect inflation to rise to 13% by October — two percentage points higher than they expected in May — and remain elevated through much of next year.

The bottom line: The central bank is telling Brits to brace for miserable economic prospects in the months ahead.