Although talks about an imminent recession are plentiful (and GDP contracted in 1H2022 already), the pace of hiring in the United States is still very strong. I speculate that this singularity is explained by a change in workers’ preferences (the so called ‘Great Resignation’). If this change is only temporary, then profit margins will drop in the short term and re-accelerate promptly in 2H2023. If not, then we are at the wake of a new economic model, with possibly less international trade.
According to pollsters, the probability of a US recession in 2023 is at 65%. Technically, a recession already happened in the first half of 2022 (rule of thumb: recession = two consecutive quarters of negative GDP growth), and so we should be in the midst of two recessionary phases. Sounds very ominous, right? Why then the US economy continues to hire lots of people?
Consider the charts above. During the 2007–08 recession, a relatively long period of labor market weakness was experienced. But even before the recession, hiring was weak. Fast forward to the present: although GDP fell for two consecutive quarters in 1H22 and most economists predict a recession for next year, the pace of hiring remains very brisk. This short paper proposes an explanation to this phenomenon and draws consequences for next year.
I believe that a significant factor in that data singularity is the so-called ‘Great Resignation’. Examine the chart below on “quit rates” (the number of people leaving their jobs by their own initiative as a percent of total employment). Quit rates normally rise in period of economic expansion and low unemployment (people leaving for a better job, a better pay), while they fall during recessions.
After the Covid ‘flash depression’, as the economy expanded again, quit rates…