Market Update: US labor market remains robust under the current bank crisis
Initial unemployed claims, a proxy for unemployment, rose by 7,000 to 198,000 (seasonally adjusted) last week, the Labor Department reported on Thursday. The number of claims fluctuated earlier in the month but is generally modest. The four-week average of weekly claims increased by 2,000 to 198,250. Several months have passed with weekly claims remaining close to the 2019 pre-pandemic average of about 220,000. Despite the situation motioned above along with the Federal Reserve’s steeply rising interest rates over the past year, the collapse of the housing market, and several rounds of headline-grabbing cutbacks from companies such as Alphabet, Meta Platforms, and Amazon, U.S. job growth has remained remarkably robust. As businesses from hospitals to hotels have struggled to reach adequate personnel levels, the number of people losing their positions has been disproportionately small compared to the number of people gaining employment. Demand from hiring employers does not appear to have diminished. As of March 31, an index of overall U.S. job openings from job-listing website Indeed was actually a bit higher than before Silicon Valley Bank’s troubles. Although it has decreased from its peak in late 2021, it is still a third higher than it was before the pandemic. The Labor Department reported that employers added 311,000 seasonally adjusted jobs in February, a decline from January’s revised gain of 504,000 jobs but still a significant increase. The unemployment rate increased to 3.6% from 3.5% in January as more persons sought employment.
What is uncertain is the extent to which the difficulties in the financial sector may eventually reduce labor demand. Even if the risk of additional deposit runs has been mitigated, regional and community banks will likely be more cautious with their lending for some time and subject to increased regulatory oversight. However, Goldman Sachs economists note that lending standards had already been tightened due to recession fears prior to SVB’s failure, so any further tightening may represent only a minor change in credit conditions. Because there are so many unmet job vacancies, they argue, even if there are fewer expansions financed by small-bank lending, many people will still find employment. Difficulties in the banking industry could cool the job market, making it simpler for companies with openings to employ workers and reducing the pressure on wage growth.
