A man walks past a “Hiring Now” sign outside a restaurant in Arlington, Virginia, on June 3, 2022.
Olivier Dulieri | AFP | Getty Images
No matter how hard policymakers try to cool things down, the U.S. job market remains hot.
Despite a series of rate hikes specifically aimed at addressing the imbalance between corporate demand and worker supply, employment is still adding hundreds of thousands of jobs a month, bringing the total to nearly 160 in the first five months of 2023 alone ten thousand.
A report from the Labor Department on Friday is expected to show the trend continuing through June. The Dow Jones consensus predicts that payrolls will rise by another 240,000 and the unemployment rate is expected to fall to 3.6%.
Well, those waiting for the employment situation to deteriorate will have to continue to be patient.
“Over the past nine months or so, the demise of the labor market has seemed imminent. It has continued in a way that we did not think was possible,” said economist Thomas Simon. Jeffries. “I think we’re going to get strong numbers on Friday. But my long-term position is that this is basically the last gasp.”
More recently, however, that has proven to be a familiar narrative.
Just as economists have been predicting a U.S. recession at any moment for the past year or so, they have been looking for labor market leads. Since January 2022, wage data has exceeded consensus expectations for almost several months as businesses continue to hire and consumers continue to spend.
But as the full impact of the Fed’s ten rate hikes began to be felt, there was a growing sense that a settlement was on the horizon.
“Combined with the fact that labor force participation rates for most groups are essentially where they were before the pandemic, it just shows to me that there aren’t that many people who can actually be hired,” Simon said.
An “overcooked” employment picture
Asked to describe the general state of the labor market, Simon called it “overmature.”
“It’s remarkable that it’s been under such high pressure for so long. But I don’t think that’s going to continue indefinitely unless there’s a fundamental change in demographics,” he said.
However, recent data suggest that the employment situation may again beat expectations.
Markets backed off on signs of a stronger labor force, selling off Thursday afternoon as expectations rose that the Federal Reserve might have to raise rates more aggressively.
“It’s hard for the market to price in the possibility that the Fed has more work to do,” said Quincy Krosby, chief global strategist at LPL Financial. within the framework of fulfilling its mission, then this is actually good news for the market.”
Investors don’t think so, arguing that the prospect of rate hikes would increase the chances of a widely predicted recession becoming a reality.
Speaking Thursday morning, Dallas Fed President Lorie Logan said she expected more work on inflation and acknowledged that she was among central bankers who would welcome a rate hike at their June meeting. one. The FOMC finally voted to pause tightening, but officials said more rate hikes were on the way.
what to look for in a report
Markets will parse Friday’s report for more points that could inform Fed policy.
One of the keys is wages. Average hourly earnings are expected to increase 0.3% month-over-month and 4.2% year-over-year. That would bring annual growth to the slowest since June 2021 and, if still above what the Fed considers consistent with its 2% inflation target, is a move in the right direction.
The average workweek will also be a key indicator, having fallen steadily but moderately since early 2021 to its lowest level since April 2020.
Another concern is the discrepancy between the agency survey used to determine overall employment and the household survey used to determine the unemployment rate. in May, Employment rose by 339,000, while the household survey showed employment fell by 331,000, almost entirely due to a sharp drop in self-employment.
On Wall Street, most economists believe the ADP report may have been inflated due to seasonality and see Friday’s gains as more modest.
For example, Goldman Sachs said it expects a higher-than-consensus increase of 250,000 in June, while Citigroup expects a much smaller increase of 170,000 in June, which it still sees as consistent with further rate hikes.
“The labor market is too tight, out of line with 2 percent price inflation, and should prompt Fed officials to raise rates again in July and September,” Citigroup economist Veronica Clark said in a note to clients.
Another report on Thursday suggested the job market may be at least loosening. Job openings fell by nearly half a million in May, the Labor Department said, which could point to some relief ahead.
“It’s not good news, but it’s good news,” said Rachel Sederberg, senior economist at Lightcast. People are gratified.”
