The job market is strong right now, but there are signs the Federal Reserve’s fight against inflation could weaken it by next year.
The Fed predicts the unemployment rate will rise from 3.7% today to 4.4% by 2023 and stay there through 2024 — a statistic that implies around 1.2 million people could lose their jobs, says Andrew Stettner, an unemployment researcher at The Century Foundation.
That’s bad news for all of us. History suggests it will be particularly painful for Black, Latinx, and less-educated workers.
“I’m confident that this job market a year from today will be weaker, and I’m very concerned about racial impacts in this type of situation,” Stettner says. “Across educational levels, you’ve seen in the past Black workers be the first to fire and last to rehire.”
Federal Reserve Chairman Jerome Powell underscored the potential rise in unemployment during the September Fed meeting, saying there will be “some softening in labor market conditions” in the coming months due to rising interest rates, slowing demand, and other macroeconomic factors at play.
That’s why experts say now’s the time to be more strategic and intentional with your career and money in case an economic downturn does come. Revisit your budget, build your emergency fund, and grow your professional network.
“Try to be thoughtful about your career and what you’re trying to do,” Stettner says. “Keep looking for those opportunities because you want to take advantage of a time when workers still do have some leverage.”
Last Hired, First Fired
Black, Latinx, and less-educated employees will be disproportionately affected by a rise in unemployment in the next year, Stettner says.
Those groups are usually the first to lose their jobs during a recession and the last to get hired because they are more concentrated in industries like retail and construction that are particularly sensitive to economic downturns. They also face more systemic hurdles in the job market, such as fewer job opportunities, lower pay, poorer benefits, and greater job instability, according to the Center for American Progress, a public policy research organization.
“When demand cools and jobs are on the margin, workers in frontline services like manufacturing or construction could really see some real suffering,” Stettner says.
We saw that happen during the most recent recession when the pandemic caused higher unemployment for Black workers across educational levels when compared with their white counterparts, a RAND Corporation study found. Latinx and less-educated employees also experienced higher rates of unemployment during the pandemic, according to several studies.
“They could face implicit or explicit discrimination, and lose their jobs and have a harder time getting back to work,” Stettner says. “We’re really concerned.”
Zoom Out: Inflation, Interest Rates, and Jobs
The U.S. economy has been in trouble for some time now. Inflation has been rampant over the last year, and consumer demand for products and services is still high.
That’s where the Fed has stepped in. The country’s central bank has hiked interest rates at a speed and magnitude not seen since the 1980s to slow down the worst inflation the country has experienced in a long time.
Stettner and other economists are hoping for a “soft landing,” or only a slight economic decline in the coming months. While there’s a chance the Fed slows things down too much, it’s a gamble the Fed is willing to take to bring down inflation.
“No one knows whether this process will lead to a recession or if so, how significant that recession would be,” Powell said during last week’s Fed meeting. “Nonetheless, we’re committed to getting inflation back down to 2% because we think that a failure to restore price stability would mean far greater pain later on.”
The country last experienced a recession at the start of the COVID-19 pandemic in 2020, and it ended up being the shortest on record. Before that, the last recession took place from 2007 to 2009 — and its severity earned it the name “the Great Recession.” Nearly 10 million people lost their jobs at the outset of the pandemic, while more than 15 million Americans were unemployed in late 2009.
Another recession and the unemployment that comes with it could fall somewhere in between the brief pandemic recession and the Great Recession, or it could be something else entirely. It’s impossible to predict with certainty, so only time will tell.
But what does that mean for the job market? While there are about two job openings for every unemployed person and hiring increased by 6.5% in August, the job market tends to be the last thing impacted by larger economic swings, Stettner says.
You’ll only start to see the Fed’s decisions affect the job market by first quarter of next year because it’s a “lagging indicator,” according to Stettner. While he remains hopeful that the country will not fall into a significant recession, the impact of an unemployment wave is a “huge unknown.”
“The real concern is that, similar to the early 2000s, the economy could be okay in general, but if you’re one of those people that loses their job and has a hard time finding a job again at the same salary, then you could be in a really negative position,” he says.
How to Prepare for Unemployment
How do you guard your job against an uncertain future? The key is to focus on what you can control and turn your anxiety into action. The best financial strategies apply regardless of whether you’ve been laid off or you’re worried about losing your job. Consider taking these steps:
Revisit Your Budget
A budget is an essential tool for gaining control of your finances, whether in a normal economic period or a downturn. It will not only help you figure out how to meet your basic everyday needs, but it’ll also help you pay down debt and invest in your future.
It’s also a tool that needs to be revisited now and then, depending on your financial situation and goals. With inflation still high, everyday expenses are more expensive than they’ve been in almost 40 years. What made sense in your budget a few months ago may no longer apply — and you may need to get savvy about where you can cut back.
Now is an ideal time to scrutinize your budget and make it as lean as possible. Look where you can cut nonessential expenses — like vacations or subscriptions — and right-size your household budget to avoid plummeting into stress spirals.
If you’re struggling to trim or adjust your budget, it may help to think about where you want your budget to be for a worst-case scenario. Ask yourself what expenses you’re willing to cut back on if you lost your job or if there was an expensive medical emergency. If you don’t already have a budget, you can put one together by following these tips.
Save, Save, Save
With recession fears growing, it’s even more critical to ensure you have enough savings set aside for the unexpected. The current macroeconomic environment may have even shifted your spending priorities — or produced savings in the forms of foregone vacations and other nonessential expenses.
Now could be the time to lock in those savings and redirect that money to an emergency fund, ideally in a high-yield savings account that rewards you for saving. Interest rates on savings and CD accounts are climbing because of the recent Fed rate hikes, which means you can earn more on your savings balance.
The amount you should set aside in your savings is a matter of debate among the experts, but most agree at least three to six months of expenses is a good starting point. Find a number you’re comfortable with and make that the target — even if you’re only putting away $5 a week. Little by little, those savings will add up.
If you already have a well-stocked emergency fund, consider increasing your savings even more. With inflation still so high, everything is more expensive, and your money may not go as far as it used to if there’s an emergency.
Understand Unemployment Benefits
You can’t prevent yourself from being on the receiving end of a layoff or furlough, but you can be prepared by researching and understanding how unemployment benefits work where you live.
Every state operates differently, so what works for some Americans to receive unemployment benefits doesn’t necessarily work for others. Check your state’s unemployment website to see the requirements, the application process, benefit amounts, and find answers to questions you may have.
Have your personal and work information ready ahead of time, including your Social Security number, driver’s license or state ID, and detailed employment history from the past 18 months, to make the claims process smoother. It may also be helpful to join online groups on Facebook, Reddit, and other social media sites for tips on applying for unemployment benefits in your area.
We put together this list in the middle of the COVID-19 pandemic of the best links and phone numbers we could find to file and check on unemployment claims.
Build Your Professional Brand
Regardless of where and when you find yourself in a difficult situation, remember to focus on what you can control — like your professional brand and network.
Spending time building a solid and active network of professional connections can help when times get tough and help connect you with other opportunities.
It’s also important to remember that the job market is still competitive. Employers added more than 300,000 jobs to the economy in August and hiring increased for the first time since April, LinkedIn’s Workforce Report shows.
Mandi Woodruff-Santos, career coach and co-host of the “Brown Ambition Podcast,” says the current conditions in the job market shouldn’t discourage you from negotiating for higher pay.
“Wages are up, demand for employees is still strong, so if you’re in the job market, it could actually be a great time for you to negotiate for more,” Woodruff-Santos said during an episode of the “Brown Ambition Podcast” in August. “I wouldn’t want anyone to think: ‘I should accept less’ or ‘Let me know lowball myself because I want to have a good chance of getting a job.’ Try to resist that.”
Grow Your Income Sources
If your budget feels tighter than usual or you want to boost your savings, consider branching out and finding additional income streams.
Building a side hustle, freelancing, or working a part-time job could all add extra cushion to your budget or accelerate your ability to achieve financial independence. It can also support you with extra money when unexpected work circumstances arise.
“The best time to start is right now,” Susie Moore, a business coach and author of the side hustle guide “What If It Does Work Out?,” told NextAdvisor.
The first step is to figure out a service you can provide to others. Are you a good writer? Do you have a skill set you can teach to others or things you can resell to others? If you’re feeling stuck, these are 18 popular income streams.
Once you find the right side hustle for you, you’ll want to start small and wisely invest your resources in the beginning. More importantly, don’t be afraid to charge people for your services.