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 and Investor Services 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 McFee

Managing Director of Macro and Investor Services

Tomas Dvorak

Senior Economist

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