Don’t Get Caught in Recession Panic

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About the author: Guy Berger is principal economist at LinkedIn.

Most folks who follow U.S. macroeconomic data knew, coming into 2022, that economic growth and labor market gains were likely to slow. Fiscal stimulus was being rolled back; the Fed was expected to raise rates. Yet when it actually happened, we collectively got quite rattled. News stories about recession spiked; on LinkedIn’s feed, discussion of recession became 10 times more frequent than a year earlier.

The economic data itself did not, and still does not, warrant that level of panic. Some of it—nonfarm employment in particular—suggests the labor market is doing well. Other data—the JOLTS survey, the unemployment rate, filings for unemployment insurance, the LinkedIn hiring rate—suggested the expansion had moderated. But none of those data points showed the sharp and rapid deterioration we typically see in U.S. recessions. In the typical U.S. recession, the unemployment rate rises by 1.9 percentage points during the first 10 months; it’s fallen in the first 10 months of 2022!

If anything, over the past few months the near-term outlook has improved slightly. The tightening in financial conditions has slowed since June. That’s giving businesses plenty of time to calibrate hiring and spending decisions instead of suddenly turning off the taps. After falling in the spring, LinkedIn’s Workforce Confidence Index has held steady. The LinkedIn Hiring Rate declined in the spring but stabilized throughout the summer. And while we’ve started to see hiring begin to drop, it isn’t at concerning levels—yet. Filings for unemployment insurance are lower than they were a few months ago, and according to a recent LinkedIn Workforce Confidence survey, just 31% of workers surveyed said they were concerned that their employer or company might be planning budget cuts or layoffs.

So is the coast clear? Not quite. The Federal Reserve is still worried about inflation. Their projections under “appropriate monetary policy” indicate they anticipate very slow (but positive) economic growth and a meaningful increase in unemployment over the next 12-15 months. And that’s the optimistic take. Some prominent economists argue that the Fed cannot succeed in achieving their inflation objective without economic contraction and a large increase in unemployment, in other words, a full-blown recession.

The last two recessions—the one triggered by the financial crisis (2008-09) and the one induced by Covid (2020)—were exceptionally severe. There is no particular reason to believe that a next possible recession will match either in severity. 

But even slow downs or mild recessions can cause a lot of pain. For example, in the relatively mild 1990-92 and 2001-03 labor market downturns, the unemployment rate increased by about 2.5 percentage points peak to trough. A slowdown of that scale today would be an increase in unemployment by about 4 million people. Associated with that increase in unemployment would be elevated layoffs, extended spells of joblessness, significant emotional distress, and loss of financial well-being. The Fed’s not-quite-recessionary projected increase in the unemployment rate would probably increase unemployment by 1.5 million, still a hefty number.

If you’re a job seeker, this might seem quite alarming. We know that economic concerns are top of mind for everyone—less than half of the people surveyed through LinkedIn’s Workforce Confidence Index said they feel prepared for an economic downturn and 85% said they are worried about price increases and inflation. Financial concerns are top of mind from the business side as well. According to a new survey from YouGov on behalf of LinkedIn, U.S. leaders say over the next six months their top business priorities are improving employee retention to avoid new hire costs as well as financially preparing for difficult times ahead. 

So here’s my advice. First, don’t panic. Even during the darkest moments of the 2008-09 and 2020 recessions, millions of people were able to start new jobs each month. The second bit of advice is to invest in your professional network and diversify your potential opportunities. If you do lose your job, or if your industry is experiencing tough times, there may be better opportunities in different industries or related-but-not-the-same job functions. On LinkedIn, we saw people pivoting careers at record rates throughout the pandemic. Your investment should not just be in your social capital (who you know), but also your human capital (what you know). Investing in your skills and knowledge will make you more resilient and adaptable. According to our data at LinkedIn, the skill sets for jobs have changed by around 25% since 2015. By 2027, this number is expected to double. Finally, if you are lucky enough to have a range of job opportunities, you may want to pursue more secure ones than you did a year ago.

If you’re an employer, I also have advice. Downturns don’t last forever. The typical post-World War II recession lasted less than a year. Therefore, stay adaptive. When times are uncertain, you need to be able to adapt quickly and that can only happen if you understand your environment and exposure. Therefore, get informed. Use whatever data you have at hand. And then, be decisive. In times of upheaval, rarely do we have the whole picture nor fully understand how all the pieces fit together, but don’t let that stop you from making decisions and taking action. Double down on your strategy, don’t hunker down in paralysis. 

Ideally, the Fed’s forecast will prove wrong. Perhaps the supply-chain bottlenecks that are partly boosting inflation will unblock enough to reassure the Fed about the risks to its price stability mandate. Or maybe all it will take to get inflation back under control will be a firm but relatively gentle tap of the monetary-policy brakes. If so, we could end up in a goldilocks scenario: plentiful jobs and economic opportunities for America’s workers coupled with low inflation and robust inflation-adjusted wage growth. Let’s hope we get there. But even if the worst case comes true, there are things we can all do now to career cushion ourselves.

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