Six months ago, the U.S. economy was full speed ahead. It finished 2021 with a growth rate of 5.7 percent, the fastest pace in nearly 40 years. It was a stunning turnaround from the year before, when the COVID-19 pandemic hit and gross domestic product declined by 2.3 percent.
The local economy also was surging. In December, the Rochester area outperformed the statewide averages for job growth and unemployment, with the monthly jobless rate hitting a low not seen since 1990.
That was then. Today, the U.S. economy appears to have run out of steam. The Commerce Department last week reported that the nation’s GDP fell in the three-month period ended June 30—the second straight quarter with negative growth. And the inflation rate is at a four-decade high; in June, it was 9.1 percent compared with a year earlier.
Hiring at U.S. small businesses, which account for nearly 95 percent of all employers, slowed in July for the fifth month in a row, according to the Paychex | IHS Markit Small Business Employment Watch.
In the Rochester region, meanwhile, the latest numbers also indicate a decelerating economy.
GDP numbers for the Rochester region are not current. However, in two of the last six months, total nonfarm employment has declined; in three of those months, including June, the unemployment rate increased.
What’s happened to the economy in the first half of 2022 is no mystery. The Federal Reserve, alarmed by soaring inflation, has acted forcefully to slow the growth rate. The Fed last week raised interest rates three-quarters of a percentage point for the second straight month; it was the fourth hike in the last five months.
Can the Fed achieve a soft landing or, at worst, a mild recession? Some economists think that by failing to respond sooner to white-hot inflation, the Fed has set the stage for a severe contraction. Others disagree, pointing to the nation’s historically low unemployment rate, hiring gains, continuing growth in consumer spending and robust industrial production.
It’s often said that two straight quarters of GDP decline signal a recession, but the official determination is made by the private National Bureau of Economic Research, which looks for “a significant decline in economic activity that is spread across the economy and lasts more than a few months.” Its announcements often come many months after the start of a contraction.
“Coming off of last year’s historic economic growth—and regaining all the private-sector jobs lost during the pandemic crisis—it’s no surprise that the economy is slowing down as the Federal Reserve acts to bring down inflation,” President Joe Biden said in a statement following the release of the second-quarter GDP report. “But even as we face historic global challenges, we are on the right path, and we will come through this transition stronger and more secure.”
The slowdown comes as the Rochester metro economy still hasn’t fully recovered the jobs it had before COVID-19 was declared a global pandemic.
In February 2020, the Rochester region had 452,600 private-sector jobs and total nonfarm employment of 533,400. Two months later, when the pandemic lockdown reached its apex, the region reported 369,000 private-sector jobs and 444,400 nonfarm jobs, down 18.5 percent and 16.7 percent, respectively.
In the latest data, from June, private-sector employment totaled 444,900, still 7,700 jobs shy of the number reported in February 2020. Nonfarm employment was 520,600, or 12,800 fewer jobs than in February 2020.
At the end of 2021, the Rochester region was adding jobs at a faster clip than the statewide average. That’s no longer true. In June, Rochester’s year-over-year changes in nonfarm and private-sector employment were 2.9 percent and 3.2 percent, respectively. Statewide, the growth rates were 5.3 percent and 5.7 percent. Rochester also trailed the Albany, Buffalo and Syracuse regions.
The local sector hit hardest during the lockdown period was the leisure and hospitality industry, which lost nearly 56 percent of its employees regionwide. The accommodation and food services sector also suffered a hard blow, with employment falling 48 percent. Those two sectors shed a combined 41,600 jobs. Construction (down 22.4 percent) and retail trade (down 21.3 percent) also lost more than one-fifth of their jobs.
Since April 2020, the rebound has been strongest in several of those hard-hit sectors: construction, leisure and hospitality, and retail trade. The construction industry regionwide in June had 4,100 more jobs than it did in February 2020, up 21 percent. The data are not seasonally adjusted, which distorts the comparison, but the latest number is 2,100 higher than in June 2020—a 10 percent gain.
Health care and social assistance, the regional economy’s largest employment sector, in June had 83,800 jobs, versus 86,700 in February 2020, leaving a gap of 2,900 or 3.3 percent. Manufacturing logged 55,200 jobs in June, versus 56,300—a difference of 1,100 or 2 percent—just before the start of the pandemic.
A tight job market
In December, the metro unemployment rate was 3 percent, compared with 6.1 percent a year earlier and 16.5 percent when the lockdown was in full force. According to data from the U.S. Bureau of Labor Statistics, the December 2021 rate was the lowest in more than 30 years locally.
In June, the unemployment rate in the Rochester region was 3.4 percent, higher than in December but down from 5.4 percent a year earlier. The continuing tight job market reflects both employers’ hiring needs and a long-term decline in the number of people in the labor force.
Monroe County’s jobless rate in June was 3.5 percent, versus 5.7 percent in June 2021. Elsewhere in the Rochester region, the June 2022 rates were Livingston County, 3.1 percent; Ontario County, 2.9 percent; Orleans County, 3.7 percent; Wayne County, 3.1 percent; and Yates County, 2.6 percent.
Unemployment throughout metro Rochester remains lower than in New York and the nation as a whole. Statewide, the June rate was 4.4 percent; nationwide, it was 3.6 percent.
The Labor Department calculates local area unemployment rates in part using the results of the Current Population Survey, which contacts approximately 3,100 households in New York each month. The data are preliminary and are not seasonally adjusted.
Is a soft landing possible?
At the macro level, there are positive economic signs, which together suggest that a soft landing could be in the cards. For starters, inflation is easing in some key categories—in particular, gasoline prices. In early June, the price of regular gasoline nationwide was more than 50 percent higher than in December; now, it is roughly 32 percent higher. In Rochester, a gallon of regular gas now costs $4.59, versus $4.93 only a month ago, a decrease that’s likely due in part to Gov. Kathy Hochul’s suspension of some fuel taxes through the end of the year.
In addition, the strong June jobs report—total nonfarm payroll employment nationwide rose by 372,000—surprised many observers. It suggests that employers continue to see reasons to hire.
“For nearly two years, businesses added staff at a rapid pace to make up for the losses experienced during the pandemic,” said Paychex CEO Martin Mucci on the release of the latest Paychex | IHS Markit Small Business Employment Watch numbers. “While the growth rate has slowed, additional analysis of our client base indicates demand for workers continues to be robust while the shortage of available applicants is slowing the overall job growth rate.”
Two additional bright spots: The stock market posted a strong rebound in July. The S&P 500 rose more than 9 percent—its best performance since November 2020 and the biggest July gain since 1939, according to Dow Jones Market Data. And real disposable personal income—which was boosted over the last two years by government COVID-relief efforts—remains higher than it was prior to the pandemic.
But at the same time, the list of challenges is long. The pandemic is still not over; in fact, the rapid spread of new variants has brought concern of another autumn surge in cases, hospitalizations and deaths. The war in Ukraine continues to fuel inflation and aggravate supply-chain bottlenecks. And even with the Fed’s recent tightening, inflationary pressures remain, especially wage growth—which rose around 6 percent in June, a rate not seen since the late 1990s.
For the Rochester economy, the task of fully regaining the ground lost during the pandemic remains. Slower growth makes this harder; a slump would push the economy in the wrong direction.
If a recession is already underway, or one arrives in the months ahead, cautious optimism might still be in order. History suggests Rochester could fare better than many other parts of the country. In two of the three recessions from 1990 to 2010, unemployment nationwide was higher than in the local region. And during the short but brutal COVID downturn, Rochester fared well in many respects compared with 53 metro areas with populations over 1 million tracked by the Brookings Institution.
In short, this region has proved its resilience. Rochester may rarely be at the front of the pack in measures of economic growth, but it often outperforms other metros when the going gets tough.