'It will be mostly a white-collar recession': Milken economist William Lee on how the next economic downturn will be different

‘It will be mostly a white-collar recession’: Milken economist William Lee on how the next economic downturn will be different

“It will be mostly a white-collar recession. And the blue-collar recession will not be in the same places that we saw in the past.”

That was William Lee, chief economist at the Milken Institute, a Santa Barbara, Calif.-based think tank, in an interview with MarketWatch, speculating on the nature of America’s next recession.

Amid rising expectations among economists of a recession — commonly defined as two consecutive quarters of negative growth — Lee said there’s still a demand for blue-collar workers in service and manufacturing, which will help protect those workers if a recession hits.

Even with a low unemployment rate of 3.6%, lower-income workers are always vulnerable in any economic downturn, but adding to comments he made on Bloomberg Radio earlier this week, Lee said there may be exceptions to that rule this time around.

‘The Joe Six Pack, who used to be the first guy to be laid off, can be less concerned if he has one of these jobs that are in high demand, like the Amazon warehouse worker, delivery guy, the guy who’s working in the ghost kitchen.’


— William Lee, Milken Institute chief economist

“The Joe Six Pack, who used to be the first guy to be laid off, can be less concerned if he has one of these jobs that are in high demand, like the Amazon warehouse worker, delivery guy, the guy who’s working in the ghost kitchen,” Lee said.

The US created a robust 372,000 new jobs in June, despite predictions of a broader slowdown in hiring and growing fears of a recession. Economists polled by The Wall Street Journal had forecast 250,000 new jobs. Job growth was particularly pronounced in manufacturing, wholesale, retail, transportation and warehousing, Labor Department data showed.

William Lee is the chief economist at the Milken Institute, a Santa Barbara, Calif.-based think tank.

Courtesy of the Milken Institute

Lee warned that young professionals entering the workforce will be among the first tranche of workers let go if there’s a sharp downturn in the economy. “The entry-level white-collar guy is going to have to watch out. That’s going to be the surprise in this downturn,” he said.

The tech sector, meanwhile, has announced a wave of job losses. Shopify is laying off roughly 1,000 jobs or 10% of its workforce, the Wall Street Journal reported this week, due to a slowdown in online shopping after the worst days of the pandemic.

A spokesperson for Shopify SHOP,
+11.70%
referred MarketWatch to a blog post by the company’s CEO and co-founder, Tobi Lütke. He wrote: “We bet that the channel mix — the share of dollars that travel through e-commerce rather than physical retail — would permanently leap ahead by five or even 10 years.” But that bet, he added, did not pay off.

Last month, Coinbase COIN,
+11.15%
extended a hiring freeze and rescinded some accepted job offers, citing current market conditions. (Coinbase declined to comment.)

Microsoft MSFT,
+6.69%
has slowed hiring and the heads of Meta Platforms, Inc. META,
+6.55%
(formerly Facebook) and Alphabet’s Google GOOG,
+7.74%
have warned employees of tough times ahead. (Microsoft, Alphabet and Meta were not immediately available for comment.)

As the pandemic hit, a lot of people have upgraded their skills. So waiters and warehouse workers have retrained themselves to be truck drivers and maybe accountants, and they’re looking for better jobs.


—William Lee

Lee said low-skill white-collar workers, such as entry-level accountants, were more vulnerable as businesses upgraded their business models after weathering the worst of the pandemic. Many of these entry-level roles have been replaced by apps and new technology; alternatively, businesses simply don’t have a need for certain lower-wage white-collar workers anymore, Lee said.

With inflation at a four-decade high and showing little sign of slowing down, the US Federal Reserve on Wednesday announced a 0.75-percentage-point rate hike to push its benchmark rate up to 2.25 — 2.5%. That put the pace of Fed tightening at the fastest pace since early 1981.

The consumer price index, which measures how fast prices for goods and services are increasing, reached 9.1% in June compared to last year, a 41-year-high. Wages have not caught up, however. In June, wage growth increased by 6.7%, according to the Wage Growth Tracker from the Federal Reserve Bank of Atlanta.

Due to a labor shortage in key industries, Lee noted that since mid-2021, low-wage workers were receiving bigger wage increases than they got pre-pandemic.

“As the pandemic hit, a lot of people have upgraded their skills. So waiters and warehouse workers have retrained themselves to be truck drivers and maybe accountants, and they’re looking for better jobs,” he said.

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