The memo, a June 17 “semi-annual review,” was written by Ethan Harris, head of global economic research for investment banking at Bank of America Securities. His specific wish: “We hope that by the end of next year the ratio of unemployed to unemployed will be below the more normal height of the last business cycle.”
The memo comes amid a push by the Federal Reserve to “cool” the economy, which many herald for the same reason — that high wages drive inflation. This year, the Fed is raising interest rates for the first time since 2018. Historically, that usually triggers a recession, and that’s exactly what will happen today: The Commerce Department announced Thursday that gross domestic product fell for the second quarter in a row, suggesting a recession has begun. Parts of the half-year review, particularly the emphasis on future stagnation, went to press when the report to clients was released. This is the first full publication of this document.
What is called this note, the ratio of job opportunities available to the unemployed, is usually calculated in reverse, i.e. ratio of unemployed to vacancies. A commonly used ratio provides a measure of the balance of power between workers and employers. The lower this number, the more opportunities the unemployed have to find work, and the more employees have more opportunities to change jobs with better pay and conditions. According to the Bureau of Labor Statistics, the ratio was 0.5 in May, meaning there are two unemployed for every one unemployed.
In 2009, during the worst moments of the economic disaster that followed the bursting of the housing bubble at the end of the George W. Bush administration, the ratio rose to 6.5, meaning that there were more than six unemployed for every vacancy. . It gradually declined over the following decade, reaching 0.8 in February 2020 before the start of the Covid-19 lockdown. This extraordinary last moment of labor influence deeply unsettled Bank of America. The report expressed concern about an “extraordinarily tight labor market” and said “wage pressures … will be difficult to reverse”. There may be modest gains in some parts of the labor market, but the upward pressure is across almost all industries, incomes and skill levels.
