MNI INTERVIEW: US Job Market At Potential Pivot Point - Shin

A raft of soft U.S. jobs data adds weight to Fed Chair Jerome Powell's view that labor market risks have increased, though central bank officials need more time to determine whether employment has hit a pivot point, Yongseok Shin, a St. Louis Fed research fellow and economist at Washington University in St. Louis, told MNI.

"We saw this coming. Chair Powell indicated the balance of risks is shifting. It's not red lights flashing yet, but a lot of things are pointing in same direction," he said in an interview. The FOMC is expected to cut rates by a quarter point next week and Shin said he does not see a case for a larger 50 bp cut.  

"I don't think it puts FOMC members in a 'too late' situation," he said. "How much of this weakness is a long run trend, versus a cyclical turning point, we need to see more data." (See: MNI INTERVIEW: Fed To Cut Faster After Weaker Jobs - English) 

The August employment report continued to reflect a sharp slowdown in job growth, to just an average of 29,000 over the past three months, and the jobless rate hit a post-pandemic high of 4.3%. Coupled with reports from consumer-facing firms that customers are pulling back and confidence is falling, Fed officials are on watch for a recessionary turn, Shin said. 

MANAGEABLE RISK

The simultaneous pullback in labor demand and supply this year are signs that President Donald Trump's tariffs and immigration policies are catching up to the economy, while the impact of AI particularly on higher-wage jobs is also being felt, Shin said. 

Job openings fell in July, the latest month of data available, and are now below the number of unemployed for the first time since the pandemic. The hiring, quit and layoff rates have been more stable over the past year. 

That matches what firms have been telling the Fed – they're unwilling to hire and unwilling to fire, Shin said. 

"Unemployment hitting 5% in the next six months I don’t think is happening, but there are headwinds to economic growth," he said. "Fed officials are now more ready to deal with labor market risks, and the sense is this is manageable." (See: MNI POLICY: Fed Takes Measured Approach To Post-September Cuts)

TWO LABOR MARKETS

Difficult-to-measure changes are happening both at the low and high ends of the labor market, Shin noted. Trump's deportation campaign has meant the loss of hundreds of thousands of immigrants in jobs that are typically low-pay and often do not employ U.S.-born workers, he said. 

Meanwhile, there's growing evidence that certain white collar jobs are disappearing as firms adopt AI tools, Shin said. A Stanford University study shows new college graduates are having a hard time finding jobs, especially in occupations highly exposed to AI automation. 

"The loss of manufacturing jobs had a lot to do with automation, not just trade," he said. "There's a lot of hyperbole about AI, but over the medium run, it may have a negative effect on employment."