How can a strong job market lead to a recession?
Last Friday, April’s US jobs report showed a strong jobs market — with 428,000 net new jobs and a low 3.6% unemployment rate. A healthy job market is good — except when it’s too hot.
The jobs situation: Despite the economy reopening, vaccine availability and unemployment benefits ending, businesses are still struggling to hire.
- A recent report by JOLTS showed a record 11.5M job openings in March — with 1.9 job openings for every 1 unemployed worker.
- 47% of small business owners had job openings they couldn’t fill in April, per NFIB.
Why is a strong job market bad? One word: Inflation. Worker shortages drive up wages and inflation, which leads to price increases from companies — further driving up inflation.
According to WSJ, there are two ways to fix the hot jobs market: Companies must slow hiring, or more people must enter the job market.
- If workers don’t work, the Fed could be forced to bring hiring down by raising interest rates even faster.
- They could achieve their desired outcome — but at the risk of starting a recession.
Taking advantage: One platform continues to benefit from a strong job market: job marketplace ZipRecruiter (NYSE:ZIP).
In a sea of crushed tech companies — $ZIP has outperformed its tech peers, down 19%, while the tech-heavy NASDAQ index is down 26% in 2022.
- ZipRecruiter is also profitable — a rare sight among fast-growth tech companies.
- What we like about $ZIP: Founder-led company, profitable and reasonably valued (forward price-to-earnings ratio of 27x).
Sales rebounded after falling at the start of COVID — growing 90%+ in each of the past three quarters. This is expected to fall to normalized rates (forecasted 2022 full-year sales growth of 19%).
But a slowing job market and a recession would severely impact $ZIP.
Looking forward: ZipRecruiter is expected to report its first-quarter 2022 results tomorrow, May 11.