Anticipating the Next Recession

Due at some point, it won’t be pretty for recruiters

Roy Maurer By Roy Maurer May 20, 2019
Anticipating the Next Recession

Jed Kolko, chief economist at Indeed.

​AUSTIN, TEXAS—It's the tightest labor market in 50 years, but fear of a looming recession is out there. Even though no one's really certain about when it may happen or what might cause it. So is talk of a recession a false alarm?

No, according to Jed Kolko, chief economist for job search engine Indeed.

"It's when, not if," he said, speaking to attendees at Indeed Interactive 2019, a conference for recruiting professionals held May 13-15. "The reason why is that the economy we're in today is not sustainable. The unemployment rate is lower than what is believed to be sustainable long-term, and the rate of job growth is much more than what we need to keep up with population growth. There are currently not enough job seekers for all the available openings."

People were already forecasting a downturn last year. And scary headlines about a coming recession continue to be prevalent. So is a recession likely any time soon?

"I don't know," Kolko said. "And no one else does ether. Economists are not very good at predicting recessions, and everybody else is worse."

He added that one of the sources for a "best guess" comes from The Wall Street Journal's routine survey of top economic forecasters. That group said there's currently a 23 percent chance of recession in the next 12 months. It was 15 percent this time last year.

"The odds of recession are low, but they are rising," Kolko said.

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Reason to Worry?

The employment data is all positive at the moment. In addition to the very low 3.6 percent unemployment rate, wage growth is at 3.2 percent year-to-year, a robust 263,000 jobs were added last month, and 80 percent of prime working age adults are working.

"There's nothing flashing yellow and nothing alarming red when looking at the data," Kolko said. There are some risks to consider, however:

  • The economy can't run hot forever. "The economy is not a precision instrument," he said. "It's more like a bad shower—when it gets a little too hot, you turn the cold on a bit and maybe it maybe it works, or maybe you get too much cold water. We often overshoot, going from an economy that's too hot to one that's colder than anyone wants."
  • There is a lot of political uncertainty, which could negatively impact the economy and the labor market, including trade conflicts with China and other nations; immigration policy that limits talent for high-skilled industries; and global shocks like a slowdown in demand for U.S. exports, and volatile energy and commodity prices.

"Then there are long-term trends in the U.S. like the aging population and lagging productivity," Kolko said.

He explained that the last five economic recessions in the U.S. were all precipitated by different circumstances. The 2007-2009 Great Recession was centered on the growth of sub-prime mortgages granted to risky borrowers who couldn't pay them off and financial institutions that acquired the mortgages as investments; some of the hardest hit places were boom towns like Las Vegas, Phoenix and Orlando.

In the early 2000's, the dot-com bust impacted technology hubs like San Jose and San Francisco. A recession in 1992 hit southern California and the aerospace industry the hardest. The recession in 1982 was the result of an energy crisis and high interest rates, and the rust belt region suffered the most.  

But Kolko said that while every slump is different, certain workers and sectors tend to be more at risk through all of them, while others have more resiliency.

"Booms tend to help the disadvantaged most," he said. "Wage growth today is highest in low-wage industries. Unemployment has fallen the most for people with the least education."

He said that economic gaps between people close during a boom, whereas during a recession, gaps widen. Traditionally disadvantaged workers—the lowest paid and least educated—often bear the brunt of the pain.

Interestingly, certain sectors tend stay level during economic recessions: health care, education, local government, and food production and food retail among them.

"These are all sectors that serve local consumers and are things that people need even when bad economic times hit," he said. "In a recession, you can cut back on electronics and tourism, but you need to eat and go to the doctor."

What Will a Recession Mean for Recruiters?

First of all, there's no need to panic, Kolko said. The odds of recession this year are still low, and the economy remains strong. But when recession does hit, it isn't great news for recruiters, who will not be immune.

"Hiring ends up being more volatile than employment overall," he said. "When employment dips, hiring plummets. In 2009, employment fell by about 5 percent in the U.S., and hiring dropped by 20 percent. That means less demand for recruiters and recruiting."

Recessions are no fun for HR in general, Kolko added. Employment in HR goes through big swings during boom and bust cycles. "HR also must do some of the hardest work during these tough times," he said. "But some things do get easier—there are more job seekers and qualified candidates available."   

At the height of the Great Recession, there were more than six unemployed job seekers for every open job, Kolko said. Right now there's less than one.

"Retention also gets much easier in a recession," he said. "Fewer workers quit their jobs. In 2009-2010, roughly about 1 percent of workers quit each month in the U.S. Today, it's double that. The quits rate is about 2 percent, and there are lots of options for people looking to move."



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