Just a day before a Friday Labor Department report detailed robust jobs data from May, including the creation of 390,000 new jobs across the U.S. and ongoing very low unemployment, Tesla CEO Elon Musk was waxing economic doom and gloom, announcing a hiring freeze and vowing to slash the workforce at his electric vehicle manufacturing company.
According to Reuters, Musk sent an email to his executive staff on Thursday titled “pause all hiring worldwide,” saying he had a “super bad feeling” about the economy and signaling plans to cut Tesla’s global workforce, which numbers about 100,000 employees, by 10%. Just two days ago, Musk announced the end of remote work options for Tesla employees in a memo, writing that “anyone who wishes to do remote work must be in the office for a minimum (and I mean *minimum*) of 40 hours per week or depart Tesla. This is less than we ask of factory workers.”
Last month’s overall gains reflect a resilient U.S. job market that has so far shrugged off concerns that the economy will weaken in the coming months as the Federal Reserve steadily raises interest rates to fight inflation. The unemployment rate remained a low 3.6% in May, just above a half-century low, according to the Labor Department.
So, what is Musk’s gloomy outlook all about?
Wages, and spending, still on the rise: Businesses in many industries remain desperate to hire because their customers have kept spending freely despite intensifying concerns about high inflation. Americans’ finances have been buoyed by rising pay and an unusually large pile of savings that were accumulated during the pandemic, particularly by higher-income households.
Workers, in general, are enjoying nearly unprecedented bargaining power. The number of people who are quitting jobs, typically for better positions at higher pay, has been at or near a record high for six months.
Average hourly wages rose 10 cents in May to $31.95, the government said, a solid gain but not enough to keep up with inflation. Compared with 12 months earlier, hourly pay climbed 5.2%, down from a 5.5% year-over-year gain in April and the second straight drop. More moderate pay raises could ease inflationary pressures in the economy and help sustain growth.
Great jobs report, but: Musk is not alone in his bullish take on what’s coming up next for the U.S. economy, in spite of the positive job numbers.
Earlier this week, Jamie Dimon, chairman and chief executive officer of JPMorgan Chase, described the challenges facing the U.S. economy as akin to a “hurricane” down the road and urged the Federal Reserve to take forceful measures to avoid tipping the world’s biggest economy into a recession, per Reuters.
Dimon’s comments come a day after President Joe Biden met with Federal Reserve Chairman Jerome Powell to discuss inflation, which is hovering at 40-year highs.
“It’s a hurricane,” Dimon told a banking conference, adding that the current situation is unprecedented. “Right now, it’s kind of sunny, things are doing fine. Everyone thinks the Fed can handle this. That hurricane is right out there down the road coming our way.
“We just don’t know if it’s a minor one or Superstorm Sandy.”
At the same conference, Reuters reports Wells Fargo CEO Charlie Scharf warned that the Federal Reserve would find it “extremely difficult” to manage a soft landing of the economy as the central bank seeks to douse the inflation fire with interest rate hikes, according to Reuters.
“The scenario of a soft landing is ... extremely difficult to achieve in the environment that we’re in today,” Scharf said. “If there is a short recession, that’s not all that deep ... there will be some pain as you go through it, overall, everyone will be just fine coming out of it.”
The wider impacts of job growth: The strength of the job market is itself contributing to inflationary pressures. With wages rising across the economy, companies are passing on at least some of their increased labor costs to their customers in the form of higher prices. The costs of food, gas, rent and other items — which fall disproportionately on lower-income households — are accelerating at nearly the fastest pace in 40 years.
Inflation had begun surging last year as spiking demand for cars, furniture, electronic equipment and other physical goods collided with overwhelmed supply chains and parts shortages. More recently, prices for such services as airline tickets, hotel rooms and restaurant meals have jumped as Americans have shifted more of their spending to those areas.
To try to cool spending and slow inflation, the Fed last month raised its short-term rate by a half point, its biggest hike since 2000, to a range of 0.75% to 1%. Two additional half-point rate increases are expected this month and in July. And some Fed officials have suggested in recent speeches that if inflation doesn’t show signs of slowing, they could implement yet another half-point increase in September.
Contributing: Associated Press