Washington DC
CNN
—
The long-strong U.S. job market continues to cool, according to multiple economic indicators released this week. This marks some progress for the Federal Reserve, which is seeking to slow job creation and slow overall demand to beat inflation.
Specifically, Federal Reserve Chairman Jerome Powell said last week that the central bank needs to achieve sustained “below-trend growth” to ensure inflation moves towards the Fed’s 2% inflation target. He said there is.
In his keynote speech last Friday at the Kansas City Fed’s annual economic symposium in Jackson Hole, Wyoming, Chairman Powell said evidence of “sustained above-trend growth” could lead to “further tightening of monetary policy,” or more. Simply put, he warned that it could lead to “further tightening of monetary policy.” Interest rate hike.
The Labor Department’s August employment report should help alleviate those concerns.
Steve Wyett, chief investment officer at BOK Financial, wrote in an analyst note that the Fed is no longer “chasing inflation.” Rather, central bank officials are likely now in a position where they can “allow the effects of previous actions to spill over into the economy and markets.”
Here are the key takeaways from this week’s job market data and what they mean for the Fed.
There are many signs that the job market is continuing to weaken, and most expect it to continue in the coming months.
The unemployment rate rose to 3.8% in August from 3.5% in July, the Bureau of Labor Statistics said Friday. Rising unemployment is bad news for Americans, but for the Fed it means taking some demand out of the economy and easing price pressures. Strong demand typically causes employers to hire more people to meet that demand, which can mean offering higher wages to successfully attract talent. These higher costs could be passed on to U.S. consumers.
According to employment statistics for August, the average hourly wage growth rate was only 0.2% per month, or 4.3% annually. In July, these figures were 0.4% and 4.4%, respectively.
The Labor Department announced earlier this week that job openings in July fell below 9 million for the first time since March 2021, and the job turnover rate returned to pre-pandemic levels.
“Almost everything in the labor market has returned to pre-pandemic temperatures,” Julia Pollack, chief economist at ZipRecruiter, told CNN. “However, the recent pace of cooling is worrying several economists, as we are seeing a fairly sharp slowdown in hours worked, temporary support services, and other indicators.”
Temporary employment decreased by 19,000 people in August. On the other hand, the average weekly working hours of all private-sector employees had been on a downward trend since the beginning of the year, but increased slightly last month.
The Commerce Department reported earlier this week that U.S. economic growth in the second quarter was slower than previously expected, largely due to a sharp downward revision to capital spending. However, consumer spending, the mainstay of the U.S. economy, rose 0.8% in July, the largest monthly increase in spending since January.
Still, this week’s economic data appears to reflect enough moderation for the Fed to pause rate hikes when officials meet later this month to deliberate monetary policy. Interest rates are currently at a 22-year high.
Steady slowdown in job market paves way for soft landing
The job market is widely expected to moderate throughout the year as the overall economy expands, with monthly growth rates still exceeding the pace needed to keep up with population growth, but the labor market is slowing.
Nick Bunker, director of economic research at Indeed, said in a note Friday that the job market as a whole is “coming back from its very high peak.”
“Salary growth was never going to maintain last year’s pace. Wages don’t grow indefinitely at more than 6% a year. Last year, the labor market was growing rapidly, but now it’s a marathon. We’re approaching that pace. Any slowdown is welcome. It’s the only way we’re going to go far,” Bunker said.
But economists and investors no longer expect a recession. in a few days. A strong job market means the Fed still has a chance to pull off a soft landing, a scenario in which inflation falls to the Fed’s 2% target without a spike in unemployment. It means there is.
Banks tighten lending standards, Americans take on more debt, student loan payments resume in October, but how much the Fed’s 11 interest rate hikes over the past year and a half will ultimately weigh on economic activity There is still uncertainty as to whether
All of these factors could disrupt the U.S. consumer, and if Americans spend significantly less, companies could start laying off workers if profits take a hit. It remains to be seen how resilient the U.S. economy will be in the coming months.
Additionally, if recession fears continue to subside, the job market may remain stable as companies are able to address persistent talent shortages. Some small businesses continue to struggle with recruitment.
“There are still many companies that say they are unable to fill vacancies due to a lack of qualified candidates, but this huge potential demand is expected to end in early 2022 due to recession concerns.” It has been put on hold since,” Pollack said.
“But if interest rates start to fall and we can be confident that there will be no recession, we may have the freedom to conserve capital and grow again.”