US economy likely to lose 175,000 jobs a month in 2023, warns BofA

The struggle of the Federal Reserve (the Fed- the central bank of the United States) to crush inflation will cause the US economy to start losing tens of thousands of jobs per month starting early next year, warns Bank of America ( BofA).

While the job market remained surprisingly strong in September, the Fed is working hard to change that, aggressively raising interest rates to ease demand for everything from cars and homes to appliances.

The pace of job growth is expected to be halved during the fourth quarter of this year, Bank of America told clients in a report on Friday.

As pressure from the Fed’s war on inflation mounts, nonfarm payrolls will begin to shrink early next year, translating into a loss of about 175,000 jobs a month during the first quarter, the bank said. . Charts published by Bank of America suggest that job losses will continue through much of 2023.

“The premise is a harder landing than a softer landing,” Michael Gapen, head of US economics at Bank of America, told CNN in a telephone interview on Monday (10).

In a perfect world, the Fed would slow down the labor market enough to bring inflation back to healthy levels, but not so much as to cause significant and persistent job losses. Bank of America doesn’t think the Fed will be able to do that.

“We’re expecting a recession to start in the first half of next year,” Gapen said.

Unemployment expected to peak at 5.5%, says Bank of America

Last Friday’s jobs report showed that while the job market is slowing, the United States added 263,000 stronger-than-expected jobs in September. The unemployment rate dropped to 3.5%, tied for the lowest level since 1969.

But Gapen expects the unemployment rate to rise to around 5% or 5.5% next year. By comparison, the Fed expects the unemployment rate to hit 4.4% next year.

The US central bank is raising interest rates at the fastest pace in at least four decades in a bid to cool inflation. Fed officials have made it clear that they are in no hurry to get out of inflation-fighting mode to save the economy from a slowdown or even a recession.

“They will accept some weakness in the labor markets to reduce inflation,” Gapen said.

Fed officials said interest rates will need to remain at “restrictive” levels for a period of time.

Gapen said that while recessions tend to have “quick setbacks,” the Fed’s stance of keeping rates high for an extended period suggests that “maybe this will last a little longer.”

“We could see six months of weakness in the labor market,” he said.

“Mild” Recession

Some analysts are more optimistic about the state of the labor market. The Conference Board said on Monday that its employment trend index, a combination of leading labor market indicators, rose last month.

The Conference Board said this is a sign that “employment will continue to grow in the coming months”, although employment gains are likely to “slow from recent pace”.

The good news is that even those calling for a recession don’t see the unemployment rate soar like it did in 2020 or 2008.

Bank of America expects the unemployment rate to hit 5.5% next year, well below the peak of nearly 15% in April 2020.

“While nobody wants to be insensitive about someone losing their job,” Gapen said, “this could be classified as a mild recession.”