Labour markets weathering the storm
Global growth slowed sharply last year as a confluence of policy tightening, trade tensions and financial stress took a steep toll. Given the scope and speed of this deterioration, the debate around the possibility of a recession has been fierce. Investors have pored over short term activity data and measures of business and consumer sentiment, which have worsened in many regions. However, perhaps less attention has fallen on labour markets, which in many cases have been more resilient.
This is perhaps most true in developed markets (DM). In aggregate, hiring slowed only modestly over 2018 across the region as a whole, and actually picked up around the start of 2019. Scratching beneath the surface, this is certainly true of the US, where employment is rising at a healthy rate, particularly outside the manufacturing sector. Even in the eurozone and Japan, which tend to be highly sensitive to the global trade cycle, we have seen employment growth moderate rather than freeze up over recent quarters. Employment in the UK has been solid, but this might be a side effect of firms’ unwillingness to invest.
The emerging market (EM) picture is cloudier, as many countries (including China and India) do not produce detailed labour-market reports. An aggregate of those that do suggests a more pronounced slowdown in employment growth over 2018. This could reflect the challenging environment for this region last year, with global trade slowing, commodity prices soft, trade tensions building and spillovers from tighter US policy providing a drag. On a more positive note, there are tentative signs of a recent pick-up in employment. This would be consistent with the improvement in hiring intentions reported in survey data across a broader range of EM economies. However, given the aforementioned data issues we should take care not to over interpret this bounce.
Overall, the slowdown in headline global growth juxtaposes more resilient labour markets in many economies. The pessimistic take might be that this is a lagging indicator, and this deceleration will weigh on hiring decisions going forward. However, it is encouraging that many firms have felt confident enough to continue to hire in this environment, and suggest that weakness in the worst affected economies and sectors has not bled into the healthier sections of the global economy. Moreover, robust labour markets provide a solid underpin for consumer confidence and incomes. With policy settings more supportive in many economies, trade tensions calming and financial conditions looser, we expect the global economy to bounce back over the second half of this year, helped by still-healthy labour-market fundamentals.
Chart 1: Firms still hiring despite slower growthSource: National Sources, Haver (as of February 2019))