People line up for the opening of the JobNewsUSA.com South Florida Job Fair at Amerant Bank Arena on June 26, 2024 in Sunrise, Florida.
Joe Reddell | Getty Images
The U.S. labor market may have cooled in July as a gradual slowdown in the economy and Hurricane Beryl are expected to take away some of the momentum for hiring.
Still, even if the Labor Department’s July nonfarm payrolls report, due out at 8:30 a.m. ET on Friday, does point to a softer employment picture, the expected decline is only incremental and consistent with the type of mild downward revision from the FBI .
“If the Fed were to achieve a soft landing, that might be the case,” said Mike Reynolds, vice president of investment strategy at Glenmede. “What you’re seeing is just mild marginal weakness in the labor market, which is (unlikely) going to spiral out of control and into negative territory.” Feedback loop.”
In fact, the department’s Bureau of Labor Statistics report expects employment to increase by 185,000 this month, down from 206,000 people in JuneThe unemployment rate remained at 4.1%, according to the Dow Jones consensus estimate. Employment reports over the past year and a half have regularly exceeded market expectations.
But some economists think the report may be optimistic. Goldman Sachs expects Beryl to wipe out 15,000 jobs as it hits much of Texas, especially Houston. The company believes payroll will increase by about 165,000 people. Citigroup expects the figure to be even lower – 150,000 people employed and the unemployment rate rising to 4.2%.
If unemployment continues to rise, it could raise concerns Sam’s Rule There is a risk of being triggered. The rule leaves no doubt that an economy is in recession when the three-month unemployment rate averages half a percentage point above its 12-month low. A year ago, the unemployment rate was 3.5% and has only started to climb since then.
Fed’s optimism
Jobs were added by an average of 203,000 jobs per month in the first half of 2024, while the unemployment rate continues to rise as more workers enter the labor market, and the number of people considered unemployed but looking for work or temporarily laid off has reached its highest level since October 2021 rise.
Fed Chairman Jerome Powell It was noted on Wednesday that the previous gap between supply and demand in the labor market was close to equilibrium. Due to soaring inflation, the number of open jobs outnumbers the number of existing workers by just 1.2 to 1, down from 2 to 1 just a few years ago.
If factors continue to balance and other inflation indicators show progress, Powell hints at rate cut Probably coming in September.
“Our confidence is growing because we are getting good data,” he told the meeting. press conference After the Fed policy meeting. “Frankly, softer labor market conditions give you more confidence that the economy is not overheating.”
Markets will be watching Friday’s data for confirmation that Powell’s views on the labor market are accurate and that the Fed is not overconfident or waiting too long to start cutting interest rates.
The clamor on Wall Street is growing louder The Fed begins to ease Most indicators now indicate Inflation rate It is not far from the central bank’s 2% target. For example, DoubleLine Capital CEO Jeffrey Gundlach told CNBC on Wednesday that he believes the economy is already teetering on the edge of recession.
“When we look back today, … I kind of believe we will say we were in a recession in September 2024,” he said.
Focus on profit
this Fed at meeting voted to keep the benchmark overnight borrowing rate at the 5.25%-5.5% range that has been in place over the past year.
Markets rose on the news, but Those gains were erased on Thursday There is news that the number of people applying for unemployment benefits increased last week, and the manufacturing industry fell further into contraction.
“By delaying a rate cut today, the FOMC is betting that the labor market is strong enough to wait until the fall to confirm that inflation will return to 2%,” said Nick Bunker, director of economic research at Indeed Hiring Labs in North America. “Let’s hope it pays off.”
As always, markets will also be watching the average hourly earnings portion of the report for signs of potential inflation.
Profit is forecast to grow 0.3% this month and 3.7% annually. If the latter is correct, this would be the lowest profit increase since May 2021.
“Even if wage pressures unexpectedly remain ‘stagnant’ or re-accelerate slightly in this report, we think the Fed’s progress on inflation to date means the Fed still has a chance to cut rates in September as soon as follow-up data is released (such as July CPI),” said BeiChen Lin, investment strategist at Russell Investments.
