Everyone was wrong except Goldman. Goldman and Chris Waller.

That’s not exactly how Jan Hatzius put it while editorializing around US labor market normalization, but he was keen to remind clients that the bank consistently suggested the rebalancing process needn’t necessarily entail mass layoffs. And it didn’t.

For over a year, private sector economists — and former Fed officials — variously insisted on the long odds of an “immaculate” normalization process. History, they were determined, ruled such an outcome too infeasible to be taken seriously. They were wrong.

“The labor market is now fully rebalanced,” Hatzius declared, in a note dated June 17. “Contrary to the predictions of some prominent economists but consistent with our own work and that of Fed Governor Waller, the normalization has occurred in a very benign fashion, with a large decline in the job openings rate and only a negligible increase in the unemployment rate,” he said.

There’s the Beveridge curve (above). Over the last two years, it was quite steep — anomalously so. The openings rate plunged, but the unemployment rate barely budged.

From here, Hatzius said, the curve should flatten out, which is to say additional declines for job openings should be expected to coincide with a higher jobless rate. “If so, the labor market stands at a potential inflection point,” he wrote.

The figure below shows Goldman’s employment survey trackers, which have receded to levels the bank described as “consistent with stagnation or slight contraction.”

Note the meaningful deterioration on the services side. That’s good news for inflation (i.e., it presages disinflation), but if services firms stop hiring, the labor market’s on shaky footing.

It’s an open question, Hatzius went on, “how well labor demand is holding up” currently given “mixed signals.” Ultimately, though, Goldman suspects any “further material softening in labor demand [could] hit actual jobs, not just open positions, and could therefore push up the unemployment rate more significantly.”

The jobless rate sported a four-handle in the last jobs report for the first time since January of 2022. It’s already up 0.6ppt from the cycle lows.