Hiring in the US private sector has slowed dramatically into the second quarter. The slower growth in hiring has largely been attributed to runaway inflation and the growing gap between the supply of labor and its demand. According to data released this week, the US private sector added 247,000 jobs in April.
This was sharply lower compared to the 395,000 jobs expected by most economists polled by Bloomberg. The new jobs are also significantly lower compared to the jobs added in March when nearly 500,000 new private-sector jobs were added. The April private-sector job growth is the lowest recorded since August last year.
There is also the feeling that after the disruptions of the COVID-19 pandemic, the US economy is now heading towards full employment. However, although the demand for workers remains strong, the supply of labor in the country has slowed markedly. Besides, April was the first month characterized by increased Fed tightening. Interest rates were higher for the first time since the pandemic-driven stimulus issued by the US Central Bank.
Whether this is an indication of things to come remains to be seen. The Fed is working against the clock to cool down increased inflation in the country. It recently raised interest rates by 0.5%, the highest single raise in over 22 years. There are fears that efforts to crack down on inflation may slow down economic growth and recovery after Covid.
However, Fed Chairman Jerome Powell is hoping for a "softish" landing of the economy as the central bank moves vigorously to tighten policy. But the risk of a recession still remains. Major banks have already predicted a major recession in the US economy this year. In fact, economic data released for the first quarter showed that the US economy unexpectedly contracted by around 0.3%.
The US Treasury noted though that there was no reason to be concerned arguing that consumer demand remained high. However, despite this assurance, economists are skeptical that the Fed will be able to slow down inflation without affecting growth. If indeed the economy slows or drifts into a deep recession, then prospects of future job growth will be cut significantly. The war in eastern Europe has also made things more complicated for the US government.
The United Nations is warning that the crisis could lead to acute food shortages around the world with prices of basic food commodities expected to increase massively. There are also fears that the crisis may trigger an energy crunch that could see energy prices skyrocket in the near term.
In fact, economists have warned that it will be very difficult for the global economy to grow this year if oil prices shoot above $150 a barrel. While this has not happened so far, a move by the European Union to issue a “phased” embargo on Russian oil could push prices way higher. But it seems at the moment the priority for the Fed and the US government is to cool down the inflation which is now at the highest point in 40 years.
