There comes a moment
In every person’s life,
When tough choices must be made
Whether to labor, to struggle,
Or simply waste
Your days away, away, away!
– Caught in a Jar, Dropkick Murphys
Fundamentally Misguided
Recent jobs data from the Bureau of Labor Statistics illustrates that as of the final business day of June, there are 10.7 million job openings. On the surface, this suggests a surplus of available jobs compared to the number of willing workers.
Simultaneously, the U.S. unemployment rate stands at just 3.6 percent—a figure close to a five-decade low. This would typically indicate full employment and a healthy job market brimming with opportunities.
Could it be that the U.S. economy, with its strong job market, is not in a recession? This viewpoint is echoed by Treasury Secretary Janet Yellen, who recently claimed that the economy isn’t experiencing a recession because “job creation is ongoing, household finances remain solid, consumers are spending, and businesses are expanding.”
However, Yellen’s assessment misses the mark. These job figures are only as reliable as the data informing them. Delving deeper reveals that the purported job numbers do not reflect economic vitality but rather point to underlying economic troubles.
Anyone outside the Biden administration can recognize that the economy is indeed facing a recession. GDP figures indicate that the economy contracted in both the first and second quarters of 2022. Traditionally, a recession is defined by two consecutive quarters of declining GDP. Therefore, by this standard, we are in a recession.
Let’s analyze some immediate anecdotal evidence revealing that the job market may be on the verge of collapse.
Are You Where You Should Be?
During a remote meeting on June 30, Mark Zuckerberg expressed his intention to remove Meta (formerly Facebook) employees who he deemed “coasting” or underperforming, stating, “Realistically, there are a number of people at the company who shouldn’t be here.”
Many at Meta found humor in this declaration, resulting in a wave of new memes on Workplace, including one that lampooned the company’s motto with, “Coast, Coasters, Me.”
In a playful twist, some employees at Meta created posters displayed prominently around the office that boldly asked, “Should you be here?” alongside an image of Zuckerberg hydrofoiling on a lake while waving the American flag.
It’s interesting how the threat of job loss can be met with lightheartedness!
Meta isn’t the only company considering layoffs. The Mercury News recently shared insights on the tech industry’s employment downturn, detailing the following:
- Amazon has decreased its workforce by 100,000 through attrition.
- Carvana Co., an online used car retailer, laid off 2,500 employees in May, accounting for approximately 12 percent of its workforce.
- Coinbase announced an 18 percent staff reduction, aiming to brace for an economic downturn.
- Gemini Trust Co., founded by Bitcoin billionaires Cameron and Tyler Winklevoss, cut 10 percent of its staff.
- OpenSea, an NFT exchange, laid off 20 percent of its employees due to an unprecedented “crypto winter.”
- Compass Inc., a real estate platform, will eliminate about 10 percent of its workforce.
- Redfin Corp., another real estate brokerage, laid off 8 percent of its staff in June.
- GoPuff, a grocery delivery service, is cutting 10 percent of its workforce and closing multiple warehouses.
- Netflix has already undergone several rounds of layoffs, totaling $70 million in severance expenses, while losing around 970,000 subscribers.
A Troubling Employment Landscape
The situation has soured considerably for the once-thriving tech sector. But what does this mean for the job market as a whole?
Is the current job data truly as encouraging as it seems? Does it genuinely indicate a robust economy, as Yellen suggests, or does it reveal a more significant problem?
David Haggith, publisher and editor-in-chief of The Great Recession Blog, offered his insights on this matter:
“Today’s employment landscape has no correlation with a flourishing economy. The abundance of job openings means that no one is willing to fill them. The labor force that once occupied these roles is opting not to return, signifying a severely unhealthy job market. Essentially, this indicates a ‘broken’ labor market.”
“This situation suggests that production cannot increase without costly automation, which requires time. Lacking labor to fill necessary roles prevents gross domestic product growth. If GDP stagnates or declines due to labor shortages, it fulfills recession criteria.”
“What we are witnessing are clear signs of stagflation. Production declines due to a considerable decrease in labor supply. Manufacturers face challenges in acquiring workers, in addition to difficulties in procuring materials and parts due to pandemic-related supply chain disruptions. Consequently, gross domestic production must decline, potentially leading to rising prices as scarcity increases. This qualifies as a recession, especially when price hikes occur amid widespread scarcity.”
“In summary, if employees do not re-enter the workforce, the ratio of producers to consumers will remain exceedingly low, resulting in insufficient goods and services for consumers, which will keep prices elevated as the economy contracts.”
Consequences of Unrewarding Work
Understand the implications here, don’t you?
Government-induced economic lockdowns have imparted a crucial lesson to low-wage earners: in today’s economy, work often doesn’t pay off. Consequently, an increasing number of individuals are opting to squander their time rather than engage in labor.
Contrary to Yellen’s assessment, job numbers highlight the frailty of the economy. A low employment rate alongside a plethora of job openings fuels inflation. Additionally, current economic dynamics suggest that forthcoming weeks and months will be exceptionally tough.
High prices will inevitably prompt higher production levels. However, they will also dampen consumer demand.
In a thriving economy—one not excessively hindered by government intervention—supply and demand discrepancies usually align over time, moderating prices.
But in an economy burdened by extreme government spending and monetary policy challenges, high prices are not addressed efficiently. Currently, businesses struggle to find the necessary personnel to increase the supply of goods and services. Thus, as the economy shrinks, consumer prices remain elevated.
Regrettably, the only way to effectively tackle high consumer prices may lead us toward a severe economic downturn reminiscent of the Great Depression era. A mere recession will not suffice.
A prolonged period of high unemployment, dwindling GDP, and a scarcity of decent-paying jobs may ultimately be required to rein in inflation. To achieve this outcome, the Federal Reserve will likely raise the federal funds rate significantly.
We anticipate widespread defaults and bankruptcies in both public and private sectors, alongside a harsh bear market in stocks and bonds, before the Fed completes its course of action.
[Editor’s Note: We find ourselves in a perilous time filled with substantial challenges for investors. Given the high stakes, I have spent the past six months researching and identifying practical steps that everyday Americans can implement to safeguard their wealth and financial privacy. My findings are compiled in the Financial First Aid Kit. If you’d like to learn about this vital publication and how to secure a copy, please visit here today!]
Sincerely,
MN Gordon
for Economic Prism
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