An Oxford Economics and Penta Study

Recent Release | 06 Dec 2022

Sentiment data point to cooling labour markets

Macro and Investor Services

Oxford Economics

Labour markets across a range of advanced economies are cooling rapidly according to a unique dataset developed by Oxford Economics and Penta. Over the coming months, as the official data confirm this trend, it will help to alleviate central bankers’ concerns that inflation is becoming entrenched. With that risk fading, the end of the rate hiking cycle in most advanced economies will come into view.

Utilising daily sentiment data constructed using natural language processing of 400,000 text sources across a wide range of countries, languages, and topics, we are able to pinpoint economic turning points in real time across a range of economies.

Our analysis identifies a synchronised cooling of employment growth over recent weeks in the advanced economies. However, the extent of the slowdown is not uniform. Based on our indicator, the UK and France are already seeing falling employment. Elsewhere in Europe, labour markets in Germany and Italy are cooling rapidly, albeit from stronger starting points. Meanwhile in the US the slowdown in employment growth is far more gradual, suggesting the Federal Reserve may have further to go before it can pause the tightening cycle.

Wage growth does not yet seem to be slowing. This is not that surprising as wages are typically stickier than employment. Comfortingly, sentiment data suggest there is little evidence that the prolonged period of elevated inflation has led to a reacceleration of wage growth in most countries.

Facing a weaker labour market and elevated inflation, consumer sentiment based on our measure is deteriorating quickly and points to a pullback in spending over the winter. Consistent with this, our data show that recession concerns are the highest they have been since the pandemic.

Overall, our unique dataset suggests that labour markets globally are finally starting to respond to the tightening in financial conditions. Monitoring how sentiment develops in the coming months will be crucial as the impact of more recent interest rate hikes is felt in the economy.

About the team

Our macro consulting team are world leaders in quantitative economic analysis, working with clients around the globe and across sectors to build models, forecast markets and evaluate interventions using state-of-the art techniques. Lead consultants on this project were:

Innes
Innes McFee

Managing Director of Macro and Investor Services

+44 (0) 203 910 8028

Innes

Innes McFee

Managing Director of Macro and Investor Services

London

Innes McFee is Managing Director of Macro and Investor Services, based in London. Innes oversees the activities of the Macro & Investor Services teams globally, including the Global Macro Forecast and Global Macro Service.

Innes joined Oxford Economics in 2017 after 6 years at Lloyds Banking Group as a Senior Economist. At Lloyds Innes was responsible for the economic scenarios underpinning the Group’s internal planning and stress testing; analysis of key risks; and developing Lloyds’ approach to multiple economic scenarios for IFRS9. In addition, Innes’ role included developing the Group’s capability in modelling macroeconomic fundamentals and UK banking markets and advising the Group Corporate Treasury on financial market developments.

Prior to joining Lloyds Innes was an Economic Advisor at HM Treasury where his roles included management of the UK’s foreign currency reserves; US economist; and G20 macroeconomic policy advisor. Innes has a first class undergraduate degree in Economics from the University of Durham and a MSc in Economics from Warwick University.

Tomas Dvorak

Senior Economist

+44 (0)203 910 8150

Tomas Dvorak

Senior Economist

London, United Kingdom

Tomas is a Senior Economist in the Macro and Investor Services’ eurozone team. He oversees the coverage of Central and Eastern Europe in addition to producing thematic research on the eurozone and developing modern, data-driven approaches to economic forecasting, including the use of alternative and high-frequency data.

Tomas holds an MA in economics from the University of Glasgow and an MSc in economics from the University College London. He previously worked as a data scientist at KPMG and as an advisor in the European Parliament.

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