Opinion | Goldilocks economy: trying to get it ‘just right’

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As anyone who’s ever eaten chocolate fudge can attest, it’s possible to eat too much of the good stuff.

That’s true for a very rich dessert – and a very strong (or hot) labor market.

When it comes to hiring, it’s a good thing to have plenty of job opportunities for workers — especially workers who typically don’t have much bargaining power. It’s a good thing for employers to offer higher wages, especially for the lowest paying and least desirable jobs.It’s a good thing for businesses to post a lot of vacancies, especially in the rough 22 million jobs Destroyed early in the pandemic.

Recently, with the May work report Posted on Friday’s show, we already have the goodies.

We are now almost filling the serious job vacancies created by the pandemic. If the pace of employment growth in May (390,000 jobs added) continues, we’ll be back to pre-pandemic employment levels in another two months or so.that would be Much earlier than (almost) anyone predicted.

Another good thing!Especially when compared to the painfully slow recovery after surgery Great Recession.

While we want a hot economy and a hot labor market, there is such a thing as “overheating.”

This can happen, for example, because consumers have a lot of cash to spend and want to spend (again, usually good stuff) – but suppliers can’t keep up with customers’ outsized demand for goods and services. They don’t have the ability to scale up quickly enough. This mismatch can lead to rapid price increases and product shortages. It can also manifest as a worker shortage if businesses work so hard to scale that they want to hire more people than can or will work.

This has been the case for the past year or so: Since May 2021, there have been more job openings posted at the end of each month than idle workers actively looking for work. The most recent month of data is April 2022, and the number of job openings is roughly double that of unemployed workers.

So even if every unemployed worker suddenly finds a job, there will still be plenty of jobs begging.

One risk in this case is Wage price spiral. This happens when a company chasing a scarce worker decides to raise wages (usually for good), but the resulting higher labor costs cause the company to raise the price they charge their customers. This, in turn, will prompt workers—who, of course, are also consumers— Ask for bigger raises, which leads to more price hikes, etc.

there are already some debate About whether we can go (or have entered) one of these terrifying spirals. There is also debate over whether the Fed needs to act more aggressively to break or stop such a cycle — specifically, by raising interest rates more dramatically than they are now.

That Can lead to higher borrowing costs, which can depress spending; however, historically, it has also often led to recessions.

In April, Federal Reserve Chairman Jerome H. Powell mentioned The labor market is “too hot.” This is unsustainable heat. “Our job is to take it to a better place where supply and demand are tighter,” he added. “

But that doesn’t mean he clearly wants hiring or economic growth to stop, or the economy to collapse. What he and other policymakers have been looking for — something that can help them avoid having to raise interest rates more dramatically — is sometimes called a “Goldilocks” economy: not too hot, not too cold. warm enough. Just right.

Powell and others have acknowledged that getting down that “just right” path and staying on it is challenging. But at least according to Friday’s jobs report, there is reason to be optimistic.

The report showed that job growth was strong, but slightly slower than in April.Wages (at least nominally, pre-inflation) are growing, but not accelerating – if anything, they have slow down touch.The report is “nice, but not a blockbuster” because politics Appropriately speaking.

More encouragingly, more Americans who have been sitting courtside before enter the labor market in May.

Hopefully this means vacancies can be filled faster. That, in turn, means the company can expand production — whether it’s home appliances, building materials, restaurant meals, or anything else — to meet customers’ ongoing demand.

To be sure, this is a month’s worth of data.there are still many economic risk in the next year or so.These are driven by combinations unfortunate shock (War and its disruption to energy and food markets; pandemic variants and associated factory shutdowns; bird flu; drought; who knows what else) — and the (still unknown) ability of central banks to flexibly adjust their responses. A rate hike will be enough, but not too much.

More reports like May’s Goldilocks would certainly be welcome.