Although it is likely that employers added fewer jobs in July, the monthly employment report is still anticipated to reveal a solid hiring rate that should gradually slow down in the months to come.
According to Dow Jones, economists anticipate a decrease from the 372,000 jobs added in June to 258,000 new jobs. The unemployment rate is anticipated to stay at 3.6%, and wages are anticipated to increase by 0.3%. At 8:30 a.m. ET on Friday, the jobs report will be issued.
“I think it should be a right down the strike zone kind of report ,” said Mark Zandi, Moody’s Analytics’ chief economist. “You’ve got more layoffs, initial claims are up and you have fewer hires because unfilled positions have come down. … We were close to 400,000 [new jobs] last month, 500,000 the month before. The models say 225,000.”
The labour market is undergoing change. As the Federal Reserve raises interest rates to curb inflation and the economy, hiring is anticipated to decline. But despite the labour deficit, businesses are still wanting to hire.
Some industries are growing rapidly while others may be in decline as a result of this factor and a shift in consumer spending toward services like tourism rather than tangible items. For instance, more jobs are anticipated in leisure and entertainment, healthcare, and leisure, but fewer opportunities in manufacturing. Jobs in construction may experience a loss.
“As long as you’re above 200,000, you’re still doing better than pre-pandemic and it’s still strong,” stated KPMG’s top economist, Diane Swonk. “It doesn’t feel very good, because it’s being accompanied by inflation.”
Walmart, Amazon, Tesla, and other businesses have already announced layoff plans, and economists anticipate additional job losses from businesses in the construction, technology, retail, and finance sectors, among others.
Economists anticipate that when the Fed raises interest rates further, the labour market would lose momentum. Some claim that the enormous monthly job growth increases could actually reverse by the end of the year. According to the Fed’s most recent projection, by that time, its target interest rate, which was zero before its rate hike in March, could be between 3.25 percent and 3.5 percent.
This horrible scourge is still not gone
“At the moment, inflation is hurting everyone. It’s an equal opportunity scourge at this point,” stated Bank of America’s senior U.S. economist, Michael Gapen. “What policymakers are faced with is pushing the unemployment rate higher.”
With a 9.1 percent increase in the consumer price index in June, inflation remained out of control. However, experts believe that both inflation and employment growth have peaked.
“Somewhere in here, there’s going to be an inflection point,” said Gapen. “The trend in unemployment claims suggests that’s in front of us. Jobless claims have been moving higher since April, but they’re still super low by historical trends.”
For the week ending July 30, weekly unemployment claims increased by 6,000 to 260,000, which is close to the highest level since last November.
Gapen predicts that by year’s end, job growth could begin to decline, with many monthly projections of job losses as high as 150,000 possible after that. By then, he anticipates a brief recession to start.
Swonk added that she anticipates payrolls going into negative territory and between 100,000 and 200,000 jobs lost per month.
According to Zandi, the central bank is attempting to orchestrate a smooth landing without significant job losses and is not currently anticipating a recession. He claimed that the payroll figures might eventually reach zero.
“If the Fed could draw a line, the line they would draw is you go right up to negative numbers and you have unemployment notch higher. You take the steam out of any wage growth. You get it consistent with any productivity growth. That’s what they have in mind,” Zandi said.
In a healthy economy, according to Zandi, job growth can be closer to 100,000 than the enormous monthly numbers that appeared as the economy recovered from the Covid-19 shutdowns. The number of employees on private sector payrolls has increased by 140,000 since February 2020, according to the Bureau of Labor Statistics.
Despite two consecutive quarters of negative GDP, Fed Chair Jerome Powell has cited the robust job market as one reason he does not believe the economy is currently in a recession. Normally, two consecutive quarters of decline, together with other indications like rising unemployment, could signal a recession, but for the time being, the economy is only thought to be in a technical recession.
Before deciding how much to raise interest rates at its September meeting, the Fed will consider two reports, including this one on employment. Some economists predict that authorities will scale down their rate increases and increase rates by just 0.5 percentage points as opposed to the 3.5 percentage points they increased rates by in both June and July.
Focusing on wages and their growth
Markets will be focusing on the strength of the increase in employment as well as pay growth, which is forecast to moderate a little. Compared to the same period last year, wages are predicted to increase by 4.9 percent, which is less than June’s 5.1 percent rate.
“Given the fact we’ve rallied pretty well into the number, there’s more opportunity for disappointment than there is for markets to be positively surprised,” according to Sameer Samana, a senior global market analyst at the Wells Fargo Investment Institute. “If you do get positive information that the labor market is cooling down and cooling quickly that could spur an additional rally from here.”
If wages are higher than anticipated, according to Samana, investors will be dissatisfied. “That could trigger a little bit of a sell-off, because people are leaning toward this expectation that inflation is coming down and the Fed could pivot soon. That, to us, is misguided.”
By the end of 2022, the Wells Fargo Investment Institute predicts that the jobless rate would rise to 4.3 percent. “It could be that much of that happens in the fourth quarter as a lot of the layoff announcements start to feed into the claims and employment data,” said Samana.
“You could see companies becoming much more hesitant to hire,” he said. Samana also mentioned the possibility of labour hoarding. “We’re hearing from companies that it’s so difficult to hire that they’ll hold on to employees through the recession.”
If the job total is as anticipated or higher, according to Gapen, it will support the Fed’s hawkish attitude.
“What does that bring from the Fed? It brings more tightening,” said Gapen. “Stronger data right now means more Fed tightening. It’s not a world where the Fed is going to lean against a slowdown in the labor market. It actively wants that.”
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