GDP declining but labor market is healthy, state economists says

With high gas prices, stock prices down over the year and high inflation rates, one might think it’s a recession. But Washington’s Employment Security Department (ESD) regional labor economist Anneliese Vance-Sherman says the two indicators of a recession – two consecutive quarters of declining gross domestic product (GDP) and labor market health – tell two different stories.

After 2022’s first two quarters of declining GDP, the U.S. economy could officially be declared a recession by the National Bureau of Economic Research’s historical standards, yet it hasn’t. Vance-Sherman said a single quarter of GDP decline and record drops in employment during the Covid-19 pandemic, from February to April of 2020, were enough to have a recession declared in 2020. But, today, the health of the labor market remains strong, and Vance-Sherman said that could be hinting at recovery.

Vance-Sherman noted that unemployment rates are at pre-pandemic levels and some are even at or near historic lows. She also said job growth is strong, wages are rising and the quits rate is up.

Washington’s preliminary seasonally adjusted unemployment rate for June 2022 was 3.9 percent, according to (ESD) data, while the June 2021 unemployment rate was 5.4 percent. The state gained 175,400 jobs during the month in 2022.

In Whatcom County, the preliminary unemployment rate was 4.8 percent in June 2022, while the year before it was 6.3 percent. Over the year, the labor force gained 3,190 workers, about 2.8 percent.

“We have one of the hottest labor markets of our lifetime,” she said.

Nationally, the seasonally adjusted insured unemployment rate was 1 percent for the week ending July 30, unchanged from the previous week, according to Department of Labor data.

Vance-Sherman said the most prevalent measure for determining a recession is GDP. A loss of 1.6 percent in the first quarter of 2022 and 0.9 percent loss in the second, according to Bureau of Economic Analysis data, show telltale signs of a declining economy. The labor market however shows the opposite.

Since in 2020 the labor market experienced the swiftest job loss it’s ever seen, Vance-Sherman said a high demand for workers two years later shouldn’t come as a surprise. Layoff activity is down to record lows, she said.

Whatcom County saw 114 initial unemployment claims filed in the week of July 31 to August 6 and the week before it saw 85. In the corresponding weeks a year ago, 153 and 137 initial claims were filed, while 550 and 702 were filed the same weeks in 2020, according to ESD data.

Washington saw similar decreases in claims filed in the last two years. About 4,000 were filed in the week ending August 6 and 5,420 were filed in the corresponding week in 2021. In 2020, ESD saw 22,140 filed in that same week.

Vance-Sherman said part of the reason for the strength of the labor market is people not returning to work.

“There are fewer people participating in the labor market,” she said. “And that’s part of the reason why the unemployment rate is so low.”

Vance-Sherman pointed toward affordability and accessibility to childcare as a major hurdle for some parents not returning to the workplace. She also said health concerns could still be a factor for some people, while others may have saved during the pandemic or found alternative income sources. But she said spending has increased, and with that, more and more people are returning to the labor force.

“Demand came back much more quickly than supply,” Vance-Sherman said. “In the labor market that is.”