Fed Survey Sounds Alarm: Concerns about Unemployment at Historic Highs

A latest survey released by the New York Fed on Monday shows that Americans are increasingly worried about unemployment. As Fed officials and economists are becoming more alert to cracks in the labor market, this is a concerning sign.

The survey conducted by the New York Fed in July on labor market expectations shows that the proportion of respondents who think they may become unemployed in the next four months has risen to 4.4%, higher than the 3.9% in the same period last year, marking the highest level since 2014, but this proportion is still lower than those who expect to switch to new positions, which has risen to 11.6%.

The survey also indicates that the proportion of workers actively looking for jobs in the past four weeks has surged from 19.4% in July 2023 to 28.4%, reaching the highest level since the data began to be recorded. The proportion of surveyed individuals satisfied with their current salaries has dropped to 56.7%, a decrease of over 3 percentage points compared to the same period in 2023.

In fact, the new survey shows cracks in the U.S. labor market across a range of indicators. People expecting to quit or lose their jobs have lowered their salary expectations, and more and more people believe they need to work until the traditional retirement age.

This survey sampled people's recent economic experiences nationwide, and the results suggest that significant cracks may be forming in the labor market.

Over the past year, the unemployment rate has risen significantly, climbing to 4.3% in July. This has raised concerns among many economic observers. Unemployment rates rarely spike as sharply as they have recently, except during economic recessions.

However, the slowdown in the labor market has not been widely supported by other data. Initial claims for unemployment benefits have risen slightly but remain relatively low. Consumer spending remains strong, with overall retail sales data and corporate profit reports indicating that shoppers are still spending money.

Nevertheless, typically, when the economy is at a turning point, a slowdown in the labor market often occurs relatively early, followed by a cooling in economic growth data. For example, during the 2008 economic recession, the unemployment rate had already been rising for several months before retail sales began to deteriorate.

This has led Fed officials to closely monitor the upcoming employment data. They will receive revised job growth data on Wednesday, with economists expecting these data to show weaker job growth in 2023 and early 2024 than in previous reports. On September 6, they will also receive the August nonfarm payroll report, the last one before the Fed's September rate decision.

It is widely expected that Fed policymakers will begin cutting interest rates at this meeting. Over the past year, they have kept the policy rate at 5.3% to address rapid inflation.

However, with the slowdown in price increases and the increasingly bleak labor market, officials are prepared to abandon this tough stance. High interest rates discourage borrowing, suppressing demand and cooling the economy.

Fed Chair Powell is scheduled to speak at the annual economic conference in Jackson Hole, Wyoming, closely watched by the Kansas City Fed, this Friday, providing insights into officials' latest views on the economy in this crisis moment In recent weeks, many Federal Reserve officials have stated that they will closely monitor the labor market when considering the next interest rate trend.

Chicago Fed President Guersby said in an interview with CBS last weekend, "If overly tight monetary policy is maintained for too long, the Fed's task in terms of employment will be problematic."

Economists hope that the labor market is currently normalizing rather than severely weak.

The COVID-19 pandemic has taken the U.S. labor force on a roller coaster ride: first, in early 2020, when businesses closed to control the epidemic, many people lost their jobs. Then, as the economy reopened, consumer demand surged, and businesses rushed to rehire employees. This was followed by a widespread labor shortage.

By 2023, employers began seriously filling vacant positions, partly thanks to an unexpected strong wave of immigrants. By mid-2024, job vacancies had returned to a more normal level, and the rampant job-hopping phenomenon in the "Great Resignation" had become a thing of the past. San Francisco Fed's Daly said at a recent event, "The issue we face now is: Is the labor market significantly slowing down or just slightly slowing down?"