The US economy has been showing remarkable strength, but the labor market is expected to face further slowing in July. As economists anticipate the upcoming jobs report, opinions are divided on whether the Federal Reserve should raise interest rates again in September or maintain the current rate following last week’s increase.
According to estimates from Bloomberg, the July jobs report, set to be released on Friday morning, is expected to reveal that nonfarm payrolls increased by 200,000 last month, while the unemployment rate is projected to remain steady at 3.6%. Wages, a key indicator of worker leverage in the labor market, are anticipated to rise by 0.3% compared to the previous month and 4.2% from the previous year.
Andrew Hunter, Deputy Chief US Economist at Capital Economics, expects the report to show a gradual slowdown in employment growth and a decline in wage growth to a two-year low. This potential outcome could give Federal Reserve officials greater confidence in the continued moderation of core inflation.
In June, the US economy generated 209,000 new jobs, maintaining an unemployment rate of 3.6%. In response to this report, the Federal Reserve raised rates by an additional 0.25% on July 26, with Federal Reserve Chair Jay Powell acknowledging the “very tight” labor market.
The latest Job Openings and Labor Turnover Survey (JOLTS) released earlier this week indicated that, as of June, there were approximately 1.6 available workers for each open job position, a decrease from the ratio observed a year ago but still higher than pre-pandemic levels.
While the Fed’s tightening policies have seen a 20% decline in job openings since March 2022, the unemployment rate has remained relatively stable. Wells Fargo economists consider this trend as progress towards mitigating inflation without causing a recession. However, they caution that elevated price growth and a continuing decrease in demand for workers could still make achieving a “soft landing” challenging.
Federal Reserve Chair Jay Powell emphasized that the central bank would closely analyze incoming data before making its next decision on interest rates. Traders’ expectations, as reflected in data from the CME Group on Thursday, suggested an 82% likelihood of a pause in rate changes in September, with markets pricing in the expectation of unchanged rates next month.
Powell clarified that the Fed is not solely targeting wage inflation but rather seeking a more comprehensive cooling in labor market conditions, which has been observed recently. As the labor market evolves and economic indicators fluctuate, the Federal Reserve remains vigilant, monitoring key data points to determine the appropriate course of action for maintaining economic stability and addressing inflationary pressures.
