Slow down or not? The US labor market is walking a tightrope
The number of “Help Wanted” signs may have fallen in the United States in August, but the employment situation still remains tight, official figures are due out on Friday.
According to consensus, the unemployment rate for August should fall to around 3.5% when official data is released at 8:30 am (12:30 GMT).
If the estimate turns out to be true, it would be the same rate as in July, when unemployment first returned to pre-pandemic levels, which were the lowest in 50 years.
Job creation, on the other hand, is expected to have slowed sharply, falling to 300,000, nearly half of July’s number.
Data on private sector job creation in August has already disappointed: U.S. employers reduced hiring during the month to 132,000, according to data released Wednesday by payroll firm ADP, a far cry from 315,000. jobs that were expected.
“We believe these numbers suggest a shift to a more moderate pace of hiring,” Nela Richardson, chief economist for ADP, said on a conference call.
Businesses of all sizes are trying to “read what has become a complex economic picture” due to high inflation and a shortage of workers at a time when employers are looking to hire at scale.
Neither an economic slowdown, nor recession fears, nor actions taken by the Federal Reserve to rein in soaring inflation have deflated the booming labor market.
In July, the labor market showed particular dynamism, returning to its pre-pandemic level.
The unemployment rate fell to a historic low of 3.5% as the 22 million jobs lost to Covid-19 returned.
By the end of the month, there were more than 11 million job openings, or two for every job seeker. Just over four million Americans left their jobs in July, and the same was true in June.
– ‘A bit of pain’ –
Meanwhile, weekly jobless claims – which provide a snapshot of layoffs – fell almost every week in August and remain at historic lows.
“Labour market conditions remain tight despite fairly weak economic growth,” Nancy Vanden Houten, chief economist at Oxford Economics, said in a note released Thursday.
US GDP contracted in the first two quarters of 2022, which falls under the classic definition of a recession.
But due to its surprisingly strong job market, the US economy doesn’t seem to be falling quite into recession just yet.
Data from the August jobs report should reinforce the Federal Reserve’s commitment to raising interest rates.
The struggle of the Fed’s rate hike against high inflation will likely lead to slower employment and even a higher unemployment rate.
Federal Reserve Chairman Jerome Powell made that point last week at a conference in Jackson Hole, Wyoming, warning of “some pain for households and businesses,” as well as a ” more flexible labor market.
With businesses facing labor shortages for more than a year, many are offering higher wages, driving up prices.
In a context of soaring inflation, the Fed gradually raised its key rate, making credit more expensive and thus slowing consumption and the pressure on prices.
It is expected to raise rates again at its next meeting on September 20-21. To determine the extent of the rate hike, she will seriously consider Friday’s employment numbers.
A slowdown in the labor market could signal that the Fed’s rate hikes are finally bearing fruit, while a tight labor market would cause the Fed to act more forcefully.
Inflation, at its highest level in 40 years, slowed to 8.5% from a year earlier in July, according to the CPI index.