The U.S. jobs market may be losing its momentum, with the growth in newly employed individuals reaching its lowest level in two and a half years. Furthermore, job creation is expected to slow down even further in the coming month of August.
What to Expect in the U.S. Employment Report
Scheduled to be released on Friday morning, the U.S. employment report will provide key insights into the state of the job market. According to a survey conducted by The Wall Street Journal, economists anticipate the addition of 170,000 jobs in August, a decline from the previous month’s figure of 187,000.
A stark comparison can be drawn when analyzing the data from the first four months of the year. During this period, the U.S. was adding an average of 287,000 new jobs each month.
However, the current rate of hiring is deemed excessive by Federal Reserve officials who are concerned about the upward pressure it exerts on wages and inflation. Their desired goal is to witness a cooldown in the labor market, resulting in employment growth of around 75,000 to 100,000 jobs per month.
Nevertheless, any further deceleration in hiring would be viewed as positive news by the Federal Reserve, potentially alleviating the need for them to raise interest rates.
It is anticipated that the percentage of unemployed Americans actively seeking work will decline marginally from 3.6% to 3.5%, maintaining unemployment levels close to their lowest point since the late 1960s.
Although hiring has slowed down, there has not been a significant increase in unemployment. For instance, only 230,000 individuals sought jobless benefits last week, a number that typically exceeds 300,000 when economic conditions deteriorate.
Many companies are reluctant to lay off workers due to the challenges associated with finding qualified individuals in the first place. This labor shortage has become the most severe in the United States since World War Two, accentuating the hesitancy to let go of valuable employees.
Overall, the upcoming employment report will shed light on the health of the U.S. job market and its potential implications for both the Federal Reserve and the broader economy.
Jobless Claims and Unemployment: Potential Impact of Higher Interest Rates
Jobless claims and unemployment rates may experience an increase if the expected decline in the economy due to higher interest rates occurs, according to Wall Street DJIA analysts. However, unlike previous periods of economic downturn, these rates are not predicted to reach excessively high levels.
Forecast: Average Hourly Wages Increase by 0.3% in August
In August, there is a projection for average hourly wages to increase by 0.3%. Although this growth is anticipated, the Federal Reserve (Fed) would prefer smaller monthly increments.
Fed’s Concern: Aiming for Lower Wage Growth
Currently, the annual increase in wages stands at 4.4%, which is considered too high by the Fed. To combat inflation effectively, central bank officials believe the pace of annual wage growth should slow down to a range between 2.5% and 3%. This range aligns with wage growth prior to the pandemic.
If wages rise at that rate, they will outpace inflation, effectively assisting the Fed in achieving its 2% inflation target.
Typical Undercounting and Special Factors
August reports have historically displayed an undercount of newly created jobs due to lower business response rates. Many people are on vacation during this period, leading to delayed or reduced participation in the government’s employment questionnaire.
However, last year did not bring any significant surprises in this regard due to a decrease in business survey responses caused by the pandemic.
Potential Disruptions: Strikes and Bankruptcy
In August, potential disruptions such as major strikes, including the Screen Actors Guild in Hollywood, and the bankruptcy of trucking company Yellow Inc., could further complicate job creation assessments. It is worth noting that individuals on strike are not counted as employed, even if they are still part of the workforce.
Chief economist Richard Moody of Regions Financial acknowledges the complex nature of interpreting the August job growth number due to various special factors involved.