This Month in Benefits: HR Professional's Next Great Challenge

Economic & Job Market Perception vs. Economic & Job Market Reality

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Over the last year the US job market and economy in general have regularly outperformed expectations, and yet consumer sentiment about current economic strength and stability continue to reveal a much more pessimistic outlook than the economic metrics would seem to indicate.

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This piece from CNBC makes the case that inflation is largely to blame for the gap in consumer perception and economic fundamentals, but the more interesting point may be the similar disconnect between perception and observed reality with regard to the strength and stability of the job market. 

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In terms of inflation, for example, even though the Consumer Price Index is at an annual rate of about 3.2% currently, which is quite tame by historic standards, consumer goods are still about 20% higher in price than they were in the early days of the pandemic just a few years ago. 

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These trends are especially true for housing costs - both for rent rates and home prices - which is a problem further exacerbated by the relatively high interest rates that have been instituted in order to suppress those inflationary pressures. 

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Currently, the median home price in the US is up more than 25% since 2019 while interest rates on 30-year mortgages average 7.83%, with the median age of home buyer now at 36 - the oldest on record in the more than 40 years that this data has been collected.. 

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In effect, even though inflation is now growing at a normal rate - albeit a slightly higher one that the Fed has claimed it would like to see before the current campaign of interest rate hikes hits its peak and recedes -  the previous inflationary spike remains priced into the current costs of goods, which is likely to weigh heavily on consumer sentiment for some time to come. 

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When we look at the labor market, we see a comparable discrepancy between a macro analysis that is largely positive contrasted with a somewhat less flattering lived experience for many of the people that are navigating that labor market on a human scale.

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From a big picture perspective, the US economy has added more than 2 million jobs this year already, and there are nearly 10 million open positions available for those seeking employment. 

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That said, about 20% to 25% of those newly added jobs were in the leisure and hospitality industry which often offers limited advancement opportunities as well as lower pay and/or tip-based compensation that in turn can be quite sensitive to wider economic conditions.

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That outsized growth in this industry is not surprising given the large number of leisure and hospitality establishments that have had to climb out of an outsized pandemic-related hole compared to most other industries, only returning to pre-pandemic employment levels as of August of this year.

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As a result, even though the unemployment rate has been at historically low levels and new jobs are being added at an expectation-exceeding pace, long-term prospects from the perspective of many of those entering and/or attempting to move or advance within the current job market do not seem all that promising, which is why Census Bureau surveys of Gen Z and older Gen Alpha respondents indicate growing pessimism on these fronts.

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In terms of what’s causing these disconnects, perhaps the metrics used to evaluate the job market and economy have not sufficiently tracked alongside changes in how the marketplace functions. Alternatively, perhaps those metrics have always glossed over some of the realities on the ground for those grasping at the lower rungs on the employment ladder, only now the proportion of the workforce who are operating at those levels has become large enough that the shortcomings of the resulting analysis are becoming harder to brush aside.

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Whatever the cause may be, however, there certainly seems to be some space between how the economy and job market look from the outside and the bottom compared to how it looks from the inside and the top, which is worth keeping in mind when planning for the coming year.

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