Rate Hikes Slow, Inflation Cools, And 2022 In Review

Letter From The Chief Economist

December 16, 2022 by Bledi Taska

Title card for the Letter from the Chief Economist

It’s the most wonderful time of the year—the week that the Consumer Price Index falls on the same week as the Federal Reserve’s FOMC meeting to set monetary policy. And even better, both pieces of news seem to indicate the economy is moving in the right direction. 

Inflation was lower than expected in November, according to the CPI. Prices rose 0.1% month-to-month and have risen 7.1% over the past year. At its highest in June, annual inflation was at 9.1%, so it’s cooled considerably. Looking just at the past few months, you can clearly see its peak this summer, and how we’re on our way down from it.

CPI for all urban consumers over time

That’s encouraging news for the Fed as it keeps seeking to bring inflation down. And after raising interest rates by 0.75% for four straight meetings, they announced yesterday they’re taking their foot off the gas just a bit, raising rates by 0.50%. The lower figure indicates that Fed Chair Jerome Powell also thinks we’re through the worst of rising prices, but he also said that the bank anticipated inflation staying high throughout 2023, which was more of a surprise than the rate hike. It looks like future increases may still be ahead—we’ll know more in February after the next FOMC meeting (and thankfully, that meeting won’t be held during a World Cup match, so I’ll be able to give it my full attention). 

Despite the Fed’s caution, this busy, busy year appears to be ending on a softer note. Both CPI and the Fed committee have moderated from their most intense positions earlier this year, but neither are dropping dramatically, either. Inflation is never easy to predict, but most indicators show that we’re still on course for a soft landing. 

2022 In Review

Speaking of this busy year, let’s take a look back.

A lot happened in 2022 on a few different levels. For us at Lightcast, it was the year we became Lightcast, which I’ve really enjoyed as we continue to expand and improve the insight we can provide on the world of work. 

And of all the years to do that, this was a big one. The labor market dominated the national conversation, with major trends like The Great Resignation and “quiet quitting” staying in the headlines for months, and the tight job market was also a major influence on the Fed’s decision-making, which of course reaches every corner of the economy. 

Among all those trends and patterns, four stood out. 

There aren’t enough workers to go around

Employers need workers. They have all year. Each month, when the Employment Situation and JOLTS reports came out from the Bureau of Labor Statistics, I and other Lightcast senior economists discussed what the news meant for workers and the labor market overall, and  month after month, we saw new reflections of the same pattern: employers still have millions of openings they want to fill, hovering near two openings per unemployed worker.

One reason for the tightness is a set of demographic trends that has led to a population that’s aging and a labor force that’s disengaged. In February, we released The Demographic Drought: Bridging the Gap in our Labor Force, which examined those trends in detail, and in September, we followed it up with a global perspective in Workers Wanted, Worldwide: Strategies to Succeed in the Global Demographic Drought. As I wrote at the time, one thing I especially appreciate about the Workers Wanted report is how it doesn’t just identify the challenges facing countries and regions around the world; it also lays out solutions specific to those challenges. 

Workers are on the move

Generally (though not entirely), Covid-19 and its restrictions faded away this year, but remote and flexible work have shown they’re here to stay. That’s led to people moving to new places, and jobs following them. In June, we released , research that showed that job growth in rural areas was outpacing that growth in urban areas across all kinds of sectors. In October, the Talent Attraction Scorecard went into further detail about which regions were developing adding the most new workers and jobs (and our data also contributed to CNBC’s list of Top States for Business, which I wrote about in July)

What need workers need to do is changing

The labor market is always in flux, but the rate of change is accelerating. One of the most interesting projects we worked on this year was a collaboration with The Burning Glass Institute and BCG: Shifting Skills, Moving Targets, and Remaking the Workforce released in May. We found that 37% of skills required for the average job have changed over the past five years, and there was more change over the past three years than the three years before that.

One reason skill requirements are changing are to adapt to new technology. The most significant of those technologies is Artificial Intelligence, which I’ve written on many times

Workforce training and education needs to adapt

In February, The Burning Glass Institute and researchers from Harvard Business School used our data in an analysis of “skills-based hiring” and what it means for the future of work (and having worked often with Matt Sigelman, Joe Fuller, and Christina Langer in the past, I was glad to do so again here). The central idea of their research was what they coined the “degree reset,” where employers are increasingly requiring specific skills in job postings, rather than college degrees. 

That trend has expressed itself in countless ways in 2022, because both education institutions and businesses have needed to be more aware and intentional in their understanding of how education leads to workplace success. In July, we talked about that in the context of adult learners returning to school, and in November, we talked about how modern apprenticeships are (still) a viable model for bridging the gap between workers and employers and the skills they need. 

Finally, 2022 was also this year that the Letter From The Chief Economist began. It’s been wonderful to think and write about these themes since starting out in June, and I truly appreciate everyone who’s read and shared, so thank you. Happy holidays, and I’m looking forward to sharing more in January. 

Until then,

Bledi Taska

Lightcast Chief Economist

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