New data released last week show the labor market in the United States is still strong. However, we may be seeing the first signs of the “softening” Federal Reserve chairman Jay Powell warned about on August 26th at Jackson Hole.
Last Tuesday, the Bureau of Labor Statistics reported that the number of job openings in the US continues to grow strongly (Job Openings and Labor Turnover survey). The number of job openings recorded in July was 11.2 million, about 1 million more than expected by economists. It even surpassed the 11 million that opened in June.
This means that there were approximately twice as many openings as people looking for work. The number of people hired for new jobs was 6.4 million.
The job-openings rate, which represents the share of total jobs in the economy that are open, stood at 6.9%, climbing from the 6.6% registered in June.
On Friday, the Bureau of Labor Statistics released data about job creation, as well as the unemployment rate (Employment Situation survey). Analysts expected 300,000 new jobs to be added to the economy, that is, a slowdown in job growth. In July, 526,000 jobs had been created (downwardly revised). The unemployment rate that month was 3.5%, matching its lowest level in the last 50 years.
The number for August came out at 315,000, beating expectations, yet still below July’s. The unemployment rate ticked up slightly, to 3.7%. The labor force participation rate grew to 62.4%, which is still below pre-pandemic levels. However, the number of total jobs does exceed the pre-pandemic peak.
The slowdown reported in the growth of jobs appears to give, even if only at the margin, more room to the Fed to reduce the pace at which it is increasing interest rates. However, a 75-basis-point hike this month is still on the table (but it is less likely, as we stated two weeks ago).
On the other hand, the number of job openings does not point towards a cooling of the labor market. In fact, the S&P 500 lost 1.1% on Wednesday after the news was reported, echoing worries that the Fed would need to continue tightening for longer to bring down the inflation rate. In fact, the S&P 500 and the Nasdaq closed last week down for the third consecutive week.
The Fed will have to assess whether policy is not contractionary enough yet, or if it is simply a matter of it being too early for labor-market data to reflect the higher rates the central bank has imposed this year. The next FOMC meeting takes place on the 20th and 21st of this month. The most important data point to be released before that date is the inflation rate for the month of August, out on September 13th.
On the other side of the pond, last Thursday the European Commission reported that unemployment reached 6.6% in the eurozone in July, an all-time low. Unemployment fell below 11 million for the first time.
This tight labor market and the risk of sharp wage increases makes it more likely that the European Central Bank (ECB) will pursue a more aggressive monetary policy. This week we expect the ECB to raise rates by 75 basis points. In July, it already raised them by 50 basis points.
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