US economy will lose 1,75,00 jobs per month in 2023: Bank of America
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Washington D.C., Oct 12: As pressure from the Fed’s war on inflation builds, nonfarm payrolls will begin shrinking early next year, translating to a loss of about 175,000 jobs a month during the first quarter, the bank said. Charts published by Bank of America suggest job losses will continue through much of 2023.
“The premise is a harder landing rather than a softer one,” Michael Gapen, head of US economics at Bank of America, told CNN in a phone interview Monday.
In a perfect world, the Fed would slow the jobs market enough to get inflation back to healthy levels, but not so much that it causes significant and persistent job losses. Bank of America doesn’t think the Fed will be able to pull that off. “We are looking for a recession to begin in the first half of next year,” Gapen said. Last Friday’s jobs report showed that although the jobs market is slowing down, the United States added a stronger-than-expected 263,000 jobs in September. The unemployment rate dropped to 3.5%, tied to the lowest level since 1969. But Gapen expects the unemployment rate will climb to around 5% or 5.5% over the next year. By comparison, the Fed expects the unemployment rate to hit 4.4% next year. The US central bank is raising interest rates at the fastest pace in at least four decades in a bid to cool inflation. Fed officials have made clear they are in no rush to shift out of inflation-fighting mode to save the economy from a slowdown or even a recession. “They’ll accept some weakness in labor markets in order to bring inflation down,” Gapen said. Fed officials have said interest rates will need to stay at “restrictive” levels for a period of time. Gapen said that although recessions tend to have “quick snapbacks,” the Fed’s stance on keeping rates high for an extended period suggests “maybe this plays out a little longer.” “We could see six months of weakness in the labor market,” he said. Some forecasters are more bullish on the state of the jobs market. The Conference Board said Monday that its employment trend index, a combination of leading job market indicators, ticked up last month. The Conference Board said this is a signal that “employment will continue to grow over the coming months,” though job gains are likely to “decelerate from their recent pace.”
The good news is that even those calling for a recession don’t see the unemployment rate skyrocketing as it did in 2020 or 2008. Bank of America expects the unemployment rate will top out at 5.5% next year, well below the peak of nearly 15% in April 2020. “Although nobody wants to be callous about someone losing their job,” Gapen said, “this could be classified as a mild recession.”