What does the US Federal Reserve’s August jobs report mean?
The long-burning US labor market continued its slowdown, according to several economic indicators released during the week, marking some progress for the Federal Reserve, which is seeking to create jobs at a weaker pace to reduce demand and overcome what remains of the country’s inflation.
Last week, Fed Chairman Jerome Powell said the central bank needs to see “below current growth” for an extended period, to make sure inflation is on track to 2%, the Fed’s announced inflation target.
On Friday, Powell warned, in a speech at the Federal Reserve Bank of Kansas City’s annual economic symposium in Jackson Hole, Wyoming, that evidence of “higher growth” could lead to “further monetary tightening,” or more simply, More interest rate hikes.
But the Labor Department’s August jobs report, released on Friday, will likely help reduce those concerns.
The Fed is no longer “chasing inflation,” Steve White, chief investment officer at BOK Financial, wrote in a note. Their past decisions seep through the economy and markets.”
The data released during the week showed an actual slowdown in the labor market, which is expected to continue in the coming months. On Friday, the Bureau of Labor Statistics reported that the unemployment rate rose to 3.8% in August from 3.5% in July.
Rising unemployment is bad news for Americans, but for the Fed it means pulling some demand out of the economy, which helps ease price pressures.
Strong demand usually pushes employers to hire employees to meet this demand, which may mean that they offer higher wages to successfully attract talent, which in practice means that these higher costs will be passed on to American consumers, that is, more price hikes.
The August jobs report showed that average hourly earnings grew at a monthly rate of just 0.2%, or 4.3% annually. In July, these figures were 0.4% and 4.4%, respectively.
The Labor Department said earlier in the week that job openings fell below 9 million in July for the first time since March 2021, and that the job turnover rate had fallen to pre-pandemic levels.
“Almost everything in the labor market has contracted to a pre-pandemic degree,” Julia Pollack, chief economist at staffing firm Zip Recruiter, told CNN. “But the recent pace of cooling has been concerning to some economists, because we’ve seen a sharp slowdown in working hours, temporary assistance services, and other indicators,” according to Pollack.
Temporary jobs shrank by 19,000 in August. Meanwhile, the average working week hours for all private sector employees increased last month, although it has been on a downward trend since the beginning of the year.
Also earlier this week, the Commerce Department reported that the US economy grew at a slower pace in the second quarter than previously reported, largely due to a significant downward revision of business investment. But consumer spending, the main driver of the US economy, jumped 0.8% in July, the strongest monthly increase in spending since January.
However, this week’s economic data indicates a significant slowdown, which increases the odds that the Federal Reserve will refrain from raising interest rates during the monetary policy meeting on the 20th of this month. Currently, interest rates are at their highest levels in 22 years.
The labor market is widely expected to continue to moderate throughout the year, in line with the general economic slowdown. While monthly job additions are still outpacing population growth, the job market is slowing.
Nick Bunker, head of economic research at the recruitment company Indeed, commented, stressing that the labor market is returning to a more sustainable level after it reached its peak, noting, in an interview with CNN, the difficulty of maintaining salary and wage growth rates at the same level. levels of last year, “as the job market is now moving from sprint to marathon pace”, says Bonker, who sees the slowdown as positive and necessary for long-term stability.
Despite these developments, economists and investors no longer expect an imminent recession, as the idea prevailed that a stable job market for the Federal Council doubles the chance of achieving a soft landing, whereby inflation returns to the Fed’s target of 2%, without a significant increase in unemployment, or a sharp decline. in corporate revenue.
Banks tightened their lending standards, Americans increased their debt, student loan repayments resumed in October, and there is still uncertainty about how much the 5.25% interest rate hike over the past year and a half will affect economic activity.
All of these factors could lead to a collapse in American consumption, and if Americans’ spending declines sharply, companies may start laying off workers, to avoid negative effects on their bottom line. It remains to be seen how resilient the US economy will be in the coming months.
2023-09-03 16:06:20
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