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Insight for Federal Reserve from Friday’s Jobs Report


The highly anticipated jobs report for July will offer valuable insight to the Federal Reserve regarding the effects of its recent tighter monetary policy. Moreover, it could potentially indicate whether the US economy is cooling off enough to forgo another interest-rate hike.

According to economists surveyed by FactSet, the predicted total nonfarm payroll growth in July is expected to have slightly slowed down. Employers are estimated to have added 200,000 jobs during the month, compared to June’s reported 209,000. Additionally, experts forecast that the unemployment rate remained unchanged at 3.6% last month.

Morgan Stanley’s chief US economist, Ellen Zentner, anticipates a deceleration in job growth within the leisure and hospitality sector. Zentner notes that there have been signs of softer demand in travel-related services, as evidenced by slower spending and slowing inflation.

Another area to keep an eye on is the information sector, which includes Hollywood and the movie industry. Although it may be too early to observe the impact of the Screen Actors Guild strike (which began in July), the writers’ strike, which started earlier, is likely to have constrained July’s payroll growth.

Overall, Zentner and her team predict that Friday’s report will illustrate a labor market that is gradually “coming into better balance.”

It is important to note that this July employment forecast follows ADP’s report on Wednesday, which revealed that private payrolls increased by an impressive 324,000 jobs in July. This figure significantly surpassed consensus expectations of 183,000 job gains. However, it fell short of the revised 455,000 jobs added in June, as reported by the private payroll firm.

Labor Market Trends Point to Sustainable Balance of Supply and Demand

After surprising economists with a strong job growth report last month, ADP’s latest payroll numbers have garnered less attention. Instead, experts are focusing on the underlying trends that suggest the labor market is gradually returning to a more sustainable balance between supply and demand.

ADP’s figures, although impressive in June, are no longer seen as a reliable indicator of the official data from the Bureau of Labor Statistics (BLS). Rather than predicting BLS figures, they serve as a reminder of their divergence. This highlights the need to consider other factors when evaluating the state of the labor market.

In addition to this, ADP’s data for July revealed slower wage gains compared to the previous month. Median wages for job changers increased by only 10.2% year over year, down from 11.3% in June and a peak of 16.4% in June 2022. Economists predict that the BLS report for July will show a further slowdown in wage growth, with an expected annual pace of 4.2%, down from 4.4% in June.

The June Job Openings and Labor Turnover Survey supports the narrative of a gradual slowdown in the labor market. Job openings decreased slightly to 9.6 million, the lowest level since April 2021. Employee quit rates also declined to 3.8 million, indicating a cooling labor market.

While Friday’s employment report will be important, it won’t be the final verdict for the Federal Reserve (Fed). The release of August payroll data on September 1, prior to the Fed’s policy committee meeting on September 19-20, will provide additional insights. So far, the data suggests that the U.S. economy is cooling as expected by the Fed. However, it remains uncertain whether monetary policy is sufficiently tight to sustainably reduce inflation.

The jobs report will be made public at 8:30 a.m.


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