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Jeremy Owens: Hello and welcome to On Watch by MarketWatch. I'm Jeremy Owens. There's a big question on investors' minds this week, has the US economy hit a wall? Recent reports on the labor market and US gross domestic product showed a cool down, which means we could be in the most dangerous part of this economic cycle. So economics editor Greg Robb joins us from Washington, DC today to break down where it could go from here. Then, even though job growth and GDP are cooling, wage growth has continued to outpace inflation. That might be changing though. Personal finance reporter Zoe Han dug up some data that suggests salary growth could be in trouble, especially for experienced workers. We discuss that and what job seekers can do to ensure a good salary. Plus, we'll take a quick look at the news stories we're watching right now and how they'll affect your wallet. First, let's talk about the economy. The US created fewer jobs in April than it had in six months. A sharper decline than economists expected. That new data followed a report on gross domestic product or GDP that found growth dipped lower than 2% in the first quarter, its poorest reading in two years. Economics editor Greg Robb told me this week that the two reports combined to put him and economists on high alert. The Federal Reserve's interest rate hikes were designed to cool off the economy in order to halt runaway inflation, but now we see the economy cooling while inflation stays above the Fed's level. Now, that's a setup that could lead to stagflation or something much worse. So we welcomed Greg on the show to explain where we're headed and what to watch out for. Greg, we talked about the economy doing really well earlier this year. And when we ended that, I asked what should we watch for for signs of any concern, and you said watch those jobs numbers. When those jobs numbers start to dip, we're starting to see the effects of what the Fed is doing. And we did see those jobs numbers come down in the most recent jobs report, which reflected April. Can you tell me what you took from the jobs report last week and what we should think of moving forward because of it?

Greg Robb: Yeah. I mean, the way I look at it, the jobs report was a little bit weaker. It's sort of like the first sign of possible trouble. I like to call it like a snowball. We don't know whether it's an avalanche. It's rolling down the hill. It can quickly turn into something bad. When you talk to economists, everybody's watching it. There's no conclusion. Some people are more worried than others. It's a sign that the Fed has interest rates high, the economy is slowing. That's always the time to say, okay, keep an eye on things. We could be in for something bumpy when the economy slows.

Jeremy Owens: And it's not just jobs that are slowing down. We saw GDP slow down. We've seen several signs now I would say that were starting to slow down in the economy. And the thing to think about there for me is this is what the Federal Reserve really wanted when they jacked up those rates. They wanted to see the economy cool a little bit to help bring down inflation.

Greg Robb: Right. They want a soft landing. They want things to come down, but they don't want things to come down quickly. But they lose control of the timing of all that, and that's the kind of thing that people are worried about.

Jeremy Owens: Just generally that as things start to soften now, what do you do? Now is the big question of as we start to see things soften, how do you keep things in that soft landing instead of having them roll like that snowball analogy you used into an avalanche that sends us into a recession?

Greg Robb: Well, some people would say cut rates. You don't have to do it a lot. You could just do it once or twice and help the economy cushion. But the problem is we've had these really bad inflation numbers and the Fed has to be sure that they're not feeding inflation. So that's why they're kind of like deer in the headlights here. They're not moving. They're just waiting and watching, taking it month by month.

Jeremy Owens: The Federal Reserve wanted the economy to cool down a little bit, but the big reason they wanted it to was that inflation cooled down. And while we're starting to see the economy cool down, inflation is still not to their desired level. It is still elevated historically, though nowhere close to where it was last year.

Greg Robb: People are talking about stagflation.

Jeremy Owens: Can you explain stagflation for us? That is a concern we've seen in a lot of headlines. Sure.

Greg Robb: Stagflation is an old turn that came out of the '70s and it's place the Fed doesn't want to get to because growth is slowing, and at the same time growth is slowing, inflation is accelerating. So the Fed doesn't have... None of its tools are working. The Fed has only a screwdriver that they go in and out with rates. You know how it is sometimes when you get a screwdriver and you put it in the screw and you start twisting it around nothing happens? So that's the place the Fed doesn't want to get to, but we could get to that place. I mean, it's not out of the realm of possibility.

Jeremy Owens: Right. That's the worst of both worlds, where you cool down the economy but you don't cool down inflation. Like you said, taking us back to the '70s where this exact same scenario seemed to appear and the Fed did go ahead and cut rates maybe a little bit too early and inflation zoomed higher while productivity did not.

Greg Robb: Right. I mean, the productivity data that we got last week showed that output was down, productivity is down, but unit labor costs were rising and they rose strongly. But when you talk to economists, they're like, keep it together. This is only one month data. One jobs report doesn't make everything, so we're going to keep an eye on things. A lot of economists think that the economy is going to rebound in the second, but that's why we're watching all the data.

Jeremy Owens: And what data should we really be watching as we move forward? You are the data guru obviously. What reports are you really watching in the next couple of months to see where this is headed?

Greg Robb: We're in that phase now where almost every report is going to help us because we're just really on this high alert, but the inflation numbers are key. We had a really rough first quarter on inflation numbers. Service sector inflation is picking up. It looks like it's sort of this last mile of inflation story that we've been thinking about. Inflation was as high as 7%. Now it's around 3%, and they wanted to get to 2%, but can we get that last mile? So inflation numbers are big. The GDP numbers are big. Consumer spending, retail sales, how the consumer's going to handle all this. Almost every report now is something that is going to help us illuminate where the economy is.

Jeremy Owens: And let's talk about consumer spending for a minute. We heard from Starbucks and McDonald's that consumers are being more discerning with where and how they spend their money and are pulling back from certain extravagances, discretionary spending, moving that spending elsewhere. Have we seen that in the data? Does that make you worry at all about where consumer spending is heading in the next couple of months?

Greg Robb: In a funny way, that would be really good news for the Fed. Because if consumers are starting to be really price conscious, that means that companies can't raise prices anymore. And if you step back, inflation is continued rising prices. The process of continuing has to be there. So if consumers can get companies to start worrying about, "Ooh, better not raise prices anymore because I'm going to lose customers," that's the best news the Fed could get. So if that's part of the Starbucks, McDonald's pullback, that's good news. On the other side, consumers are slowing down. They had a lot of money during the pandemic, but I think you really, really... I mean, I've been doing this for about 30 years and you never underestimate the US consumer. Consumers really want to spend money. We can see coming out of the pandemic, they want to have really good vacations, they want to have really good quality time with their family and friends.

Jeremy Owens: Right. People may be cutting out that coffee once or twice a week so they can afford the vacation coming up this summer. They may have just put their plane tickets for the summer on their credit card like I did and gone, "Well, I need to cut back the spending so I can hit that credit card bill." But the other big part of that is wages. The wage increases need to stay ahead of inflation because inflation was ahead of wage gains for so long. What are we seeing right now in the wage information that comes along with the jobs report? How are people doing, because we have people who have struggled to get those raises to be able to afford the life that we're living right now?

Greg Robb: Right now, wages are rising above inflation, so workers are getting some of it back. But I think it's fair to say it's grudgingly coming back. It's not a big spike. And that's good news because one of the things that the Fed would be worried about is a wage price spiral, which is another way to kick inflation into high gear. If people get high wages, then companies have to get more money somehow, so they're going to raise prices. That raises the question, is the Fed really going to slam on the brakes to get to two, or are they going to declare victory at 2.5, 2.8? Are they going to ease it down? So that's one of the debates that people are having

Jeremy Owens: And that's really the big debate, especially for investors looking at where the market is headed. Also people like homeowners who are looking to maybe sell or buy and looking to maybe is that rate going to come down? And it seems like that's been a tough discussion where we thought it would already happen by now at the beginning of the year. Now it's been pushed back. And it seems like most of the bets now are on July and September is where the most focus is right now on the Fed and if they might reduce those rates before the presidential election in November.

Greg Robb: My current reading now, and it changes a lot, but I think the Fed wants to cut by July. They have to get some good inflation numbers in order to do that. They have a meeting in June, and then the next meeting is in July, end of July. I think they want to move at the end of July. The next meeting after that is September. I really don't think they want to cut in September.

Jeremy Owens: That's way too close to the presidential election, right? We discussed this before where they don't want to be seen as putting their thumbs on the scale when it comes to the presidential election.

Greg Robb: Right. I mean, it's not like you want to say right away that the Fed is not being political here. It's not the sense that they're trying to lean Democrat or for the Republican. They just want to stay out of the fray. And when you come after Labor Day, there's fray. So anything they do, it would be the first cut. Big splashy headlines, Fed cuts rates, and that's not what they want. So they would wait I think until they have a meeting in November after the election and then December a little bit later. When you talk to economists and everybody, they say when you step back in history, it doesn't really matter. Three months doesn't matter when you're talking about interest rates. So the waiting wouldn't hurt anything too much, so they would just kind of wait. But it's not like they're being political. They really don't take politics into account. It's just that sense of interjecting yourself into the middle of a national debate.

Jeremy Owens: Right. And it just seems like the Fed is maneuvering around a lot of moving parts right now with the presidential election and the future with a slowing of the economy right now and some worrisome anecdotes or data for the coming months. They're trying to figure out where to jump, and there are pros and cons all around. And it seems like even the Federal Reserve chairman might be in disagreement right now. There is not consensus. There are some, from what I understand, who want to hike, and there are some who want to stay, and there are some who want to cut. It seems like a very, very uncertain time to round it out.

Greg Robb: Yet to be fair to them, we haven't had any of these pandemics where everybody had to stay home for, whatever, a long period of time, and we're still coming out of that. We're still dealing with the way things are going, and that's why they're being cautious about things. Some people are wondering if the Fed will have to hike rates again. The unemployment rate is close to 50 year lows. The economy could pick up speed again, so the next move might be a hike. You can't rule that out. I think most economists think now that's a pretty slim possibility. But for a while there was no possibility, but now we're in the small possibility camp. The next move will be a hike. They could hold rates steady for a while.

Jeremy Owens: And we'll be on pins and needles watching that snowball roll to see how big it gets and come back and talk to you more about inflation and everything else that can factor into this. Thanks so much for joining us, Greg.

Greg Robb: My pleasure. See you soon.

Jeremy Owens: We're going to take a quick break. Coming up, concerns about salary. Stay with us. Welcome back to On Watch by MarketWatch. Before the break, we talked with economics editor Greg Robb about the slowing jobs market. Now we welcome reporter Zoe Han to talk about what the labor market looks like to those trying to find a new job. This story came to Zoe through TikTok. She saw a bunch of videos like this one where jobs seekers looking at online listings saw that salary ranges were lower than what they had received in the past.

Zoe Han: One trend that I am continuing to see that is starting to become insulting is the underpayment for roles.

Jeremy Owens: Now, those stories don't seem to line up with the economic data, which showed wage growth outpacing inflation. So Zoe dug deeper and found something interesting. Salaries for newly hired workers have been declining, and human resources experts told her that after a battle for employees in 2022, businesses aren't as willing to shell out a nice paycheck anymore, which could be bad news for the labor market and wages going forward. Zoe joins us now to discuss what she found and what job seekers can do to compete in this landscape. Zoe, we talked to Greg about the labor market, and he did say that while the froth has been taken off the labor market, the wage gains are still strong, but we're hearing a little bit of something from people in the job market right now looking for a job that could suggest those gains aren't for the long term. What have you been hearing from people both through TikTok and just talking to people who are out there trying to find a job?

Zoe Han: Yeah, this is a great question. The labor market is really confusing right now because the job seekers, if you look at the LinkedIn platform, look at the job posts, there's going to be a lot of LinkedIn posts talking about they have such a hard time finding a job. And a lot of people, they've been through 2008 and they are saying they had an even harder situation finding a job than that. I'm going to share one LinkedIn post I saw that inspired a story I did, and I thought that quote was so just heartbreaking. So this woman said, "I'm so upset at the positions that I've applied. I've been applying for jobs since August 2022. The positions I'm seeing are paying what I made in my 20s." That is exactly what is happening in the labor market right now. A lot of the new job posts you're seeing on job board is not paying as much as before.

Jeremy Owens: Right, and these are largely middle-class jobs, more experienced jobs? What we saw early on with the wage gains was a lot of them went to the lower rung where minimum wages got boosted up, and there seemed to be a lot of competition for jobs on the lower rung in the salary scale and the salaries were coming up. But a lot of what we're seeing now, and we talked about this last week with the troubles the middle class sees, is the salary ranges for more experienced jobs. And you brought up the person who was in their 30s, 40s and seeing salaries that would've been more appropriate in their 20s. That seems to be a lot of these more experienced jobs, bosses are looking to try to find lower salaries for those jobs.

Zoe Han: It seems to be something we are seeing. There have been a lot of chatters when the layoffs started happening in 2022, in 2021, talking about the mid-level people, they're seeing a lot of more hardships in finding jobs, and they're seeing more layoffs in general as well. But we are definitely seeing a very split labor market that way, whereas low wage or more the frontline workers, they're gaining a lot more in wages. But at the same time, people who are in their mid-career or maybe even 20 years into their career, they are not seeing as good jobs they can find. When I went in with this piece, I was thinking, oh, company's HRs, they're never really going to admit this is happening. But actually they were saying because we had a hiring spree in 2022, and then a lot of the roles are actually overpaid just because how hard it was for companies to find those workers to fill those roles. And right now companies do not really have the money to pay for new workers as much, so they are actually going through a salary reset situation. So a lot of the roles, they're really paid so much less than before. In some cases, I've heard people seeing the pay go down about 30% to 40%.

Jeremy Owens: 30% or 40% less than what they were seeing for the same position earlier.

Zoe Han: Yeah, that's correct.

Jeremy Owens: Yeah, and I think we've seen this writ large when you say that companies don't have the money, at least in the corporate earnings we've seen, they have the money. It's about keeping those profit margins fat enough. When we're talking about especially large public companies, they are trying to make sure they eke out every single dollar because they hit big profit margins in '22 and they want to hit those profit margins again, but they're finding that difficult. And I think we're seeing that play out here as well. What other factors did you hear, what other data did you collect during this that led you to writing this story?

Zoe Han: I saw a co-worker on social team. She reposted a TikTok video talking about there was a woman, she used to be a chief growth officer at a company, and then she got laid off in late November. And when she turned to the job war, she went through so many rounds of interviews. She found out she cannot find a job that paid the same level of pay she was getting before. And then the recruiter was also telling her very straightforwardly that you cannot expect to earn the same amount of money as before. And she found it outrageous because the cost of living is really high, but the companies are cutting down salaries. That is something we started the search for this story, and then I continued to chat with job seekers to see if this is actually a wide scale phenomenon or it is just happening to a few people. But then as we've seen in the LinkedIn platform or just everywhere, white collar workers, they are expressing the same sentiment. They are saying, "This is really happening. I haven't been really seeing job pay this low before." And I also heard from HRs, they were saying, "It's really just demand and supply, economic conditions driving the pay. You used to have really high demand for certain positions. Now you have a lot more supply of talents. So in order to balance that out, you are seeing the pay going a lot lower than before."

Jeremy Owens: Well, is it supply of talent or is it willingness to hire younger, less experienced talent? I think that's one thing we can see here is that when they're making these decisions, number one, they're willing to entertain a much wider band of potential applicants, especially if some of those applicants are cheaper, I would say. And number two, I think these companies are more than willing to let these jobs sit on the market for a while. And that's something we've also discussed as a possibility. We have seen the length of time job ads are up increased, right? While there are a lot of ads out there and there's a lot of job seekers wondering, are they actually trying to hire for this position or are they just resume farming? And that leads to the frustrations on the other end. Are people just tossing out resume after resume after resume after resume with no hopes of getting a response because they're just fishing?

Zoe Han: I heard from an economist from Gusto, and she described it as a wait and see economy. That was actually from the employer side. But I feel that's the same with the job seekers too, as you said, is that it's really frustrating because you are not really knowing what is happening on the other end. So you are also staying on your job a lot longer. People are not really switching jobs as before, and employers, they're also really hesitant to hire people as well. So we have a lot of uncertainties and everybody really felt that.

Jeremy Owens: Yeah, and it feels like all of those uncertainties are working against the job seeker. So give us some advice for those out there looking for jobs. I mean, should you go for a job where the salary range is below where you want it and then try to negotiate it higher? Should you have some other tactics to get there? What should job seekers in this situation do, Zoe?

Zoe Han: Just really remember to negotiate your salary because you know you're worth the bust. Nobody else does more than you. And I do want to give a sense of hope to the job seekers out there listening to us today is that one of my job seekers that I talked to, she actually landed a job after we finished the interviews. She is the person that told me she will not settle for a job for a low pay, but seeking for senior experience levels. So at the end, she insisted on what she's worth to be paid and she found it. So hope is there. If you insist on your value, you are able to find something.

Jeremy Owens: That's right. We've been talking a lot about the struggles of middle-class and middle-income folk the last couple of weeks, and I don't want anybody to get too depressed about this to lose hope. There is lots of hope out there. It just seems like people have to work a little bit harder right now in this economy.

Zoe Han: One more thing that I've seen people do after not being able to find any jobs through employers is that they started building their own brands and start their own business. So the woman in the TikTok video we saw at the beginning of this whole process, she actually started becoming her own CEO founding this company, and she is earning three times as much as she would be working for one company. But at the same time, she also acknowledged that that is not a route everybody can go. I would say a lot of people are taking on more freelancing works, so not exactly becoming their own boss, but is a way to build up your resume, your portfolio, your experience to finance for yourself.

Jeremy Owens: We'll keep reporting on the labor market. So if you're experiencing anything out there and want to get in touch with us, you can get in touch with Zoe, zoe.han@marketwatch.com. We are, of course, at onwatch@marketwatch.com. Thank you for joining us, Zoe. Before we go, it's time for what we are watching and look at the news you need to know for the rest of the week and beyond. As Greg and I mentioned, inflation readings will be key in the months ahead. Next week, we receive information on the consumer price index or CPI and producer price index or PPI. Economists expect that CPI increased 3.5% or more over the past year, while the Fed would like to see consumer inflation closer to 2%. MarketWatch's DC team will break down the numbers next week to figure out whether the Fed will act on it. Retail sales for April will also arrive next week and give us more information about how and where consumers are spending their money. Major retailers will also begin unleashing their earnings numbers for the first calendar quarter with Home Depot and Walmart most prominent. Are Americans still making home improvements and looking for deals? We'll find out. While all that's happening, keep an eye out for the start of a special package of stories from MarketWatch. Our annual Best New Ideas in Money event kicks off Tuesday and we'll be highlighting some of the best ideas our reporters found next week. And that's it for this episode. Thanks to Greg Robb and Zoe Han. To keep following the latest on economic news in the labor market, head to marketwatch.com. You can subscribe to the show wherever you get your podcasts, and please do. If you like what you heard, please leave us a rating or review. It really helps others discover the show. And let us know what you want to hear from us. You can reach us at onwatch@marketwatch.com. The show is hosted by me, Jeremy Owens, and produced by Mette Lützhøft and Jackson Cantrell. Isaac Gaines mixed this episode. Melissa Haggerty is the executive producer. We'll be back next week with a new episode, and until then, we'll be watching.