When the Federal Reserve raises interest rates, as it has multiple times since the beginning of the year, borrowing becomes more expensive for everyone, including businesses relying on credit financing to expand. When the cost to carry debt soars, businesses may decide to reduce operating costs to afford the higher interest burden.
Steeper interest rates can lead to more financial challenges for businesses, which can then lead to layoffs and higher levels of unemployment.
News about layoffs is trending. Job losses are primarily concentrated in the mortgage and housing industries, which have slowed considerably due to rising interest rates.
There are some signals that the job market is cooling a bit. Filings for unemployment benefits have been going up, recently reaching their highest level this year.
It may just take longer for the unemployment rate to catch up due to lingering data points. The labor market is typically one of the last indicators to show real stress.
Can there be a recession if the job market is relatively healthy?
The National Bureau of Economic Research makes the official call of a recession, considering the health of the job and other economic indicators, such as retail sales, industrial production, and personal income growth. Historically, the most severe recessions have been accompanied by widespread layoffs and recurring spikes in unemployment.
However, across the board, the number of job openings is almost double the number of unemployed job seekers. In June, there were 10.7 million jobs available, with widespread job growth. Recorded layoffs have remained steady, between 1.3 million and 1.4 million each month since the beginning of 2022.