Richmond Fed President Thomas Barkin has provided a clear lens through which to view the current U.S. labor market's surprising resilience.
He argues that with corporate profits booming, companies have little incentive to lay off employees. This concept, often called 'labor hoarding,' explains why the job market can remain stable even as the Federal Reserve keeps interest rates high to combat inflation. It's a simple but powerful idea: when business is good, firms would rather absorb costs and slow down new hiring than let go of valuable staff they might struggle to rehire later.
This narrative is strongly supported by recent data. First, S&P 500 earnings for the first quarter of 2026 surged by an impressive 28.4% year-over-year, the fastest growth seen since 2021. This earnings cushion gives companies the financial flexibility to retain their workforce. It directly validates Barkin's point that strong profits blunt the 'motivation to fire.'
Second, while hiring has cooled, the market isn't collapsing. The average monthly payroll gain from February to April was about 56,000, a clear slowdown but not a sign of widespread layoffs. This fits perfectly with Barkin's description of a 'low-hire, low-fire' economy. Job openings are down and fewer people are quitting, but forced job cuts remain low.
Finally, all of this is happening while inflation remains stubbornly above the Fed's 2% target. Core PCE, the Fed's preferred inflation gauge, was at 3.2% in March. Because the strong job market isn't overheating wages or demand excessively, thanks to this labor hoarding dynamic, the Fed feels it can be patient. It can hold its policy steady, waiting for inflation to cool further, without having to engineer a painful recession by forcing unemployment higher. This gives the Fed a precious commodity: time.
- Labor Hoarding: A situation where companies choose to keep employees on their payroll during an economic slowdown, even if there isn't enough work for them. They do this to avoid the high costs of firing and then rehiring when the economy recovers.
- PCE (Personal Consumption Expenditures): An index that measures inflation by tracking the prices of goods and services purchased by consumers in the U.S. It is the Federal Reserve's preferred measure of inflation.
- Low-hire, low-fire: An economic condition where companies are hiring very few new employees but are also laying off very few existing ones, leading to low churn in the labor market.