Over the last two quarters, the Fed has shifted its emphasis away from the inflation half of its dual mandate and back toward the employment side. It is taking the view that inflation will continue to decelerate, but employment growth is starting to more tangibly slow and further rate cuts were needed to shore up growth and prevent further deterioration. In our view, while there is a clear deceleration in job growth taking place, it looks to be driven as much, if not more, by supply-side dynamics, as opposed to what would be more concerning demand ones. Following the release of last Friday’s December employment report in this Economics Weekly, Richard de Chazal reexamines the labor market data and the current market narrative of an unfolding deceleration in employment growth that is putting the economy on the verge of a recession.
