As the Fed raises interest rates to battle inflation, job growth should stall.
As the Fed raises interest rates to battle inflation, job growth should stall.
The monthly employment report is expected to indicate a healthy pace of hiring that should slow in subsequent months.
Dow Jones predicts 258,000 new jobs, down from 372,000 in June. Unemployment will be 3.6% and wages will grow 0.3%. Friday’s jobs report is at 8:30 a.m.
Mark Zandi, chief economist of Moody’s Analytics, said it should be “below the striking zone.” More layoffs, more initial claims, and fewer hires due to fewer empty positions. Last month, we added about 400,000 jobs, and the month before, 500,000. Models say 225,000.”
As the Fed hikes interest rates to temper inflation and the economy, hiring should decline. Despite worker shortages, corporations are still hiring.
Because of this and customers’ move to spending on services, such as travel, some businesses are growing while others may be declining. Health care, leisure, and entertainment will add jobs, while manufacturing will lose. Construction jobs may decline.
Diane Swonk, the chief economist at KPMG, said, “As long as you’re above 200,000, you’re still doing better than before the pandemic, and it’s still strong. It doesn’t feel nice because it’s coupled by inflation.”
Walmart, Amazon, and Tesla have scheduled layoffs, and economists forecast more in construction, technology, retail, and finance.
Economists expect the labour market to lose speed as the Fed raises interest rates. Some think monthly employment gains could fall by the end of the year. By then, the Fed’s target interest rate, which was zero before the March boost, could reach 3.25 to 3.5 percent.
Inflation hurts everyone. It’s an equal-opportunity pestilence, said Bank of America’s chief U.S. economist. “The problem policymakers face is making the unemployment rate go up.”
In June, CPI rose 9.1%. Inflation and employment growth have peaked, say analysts.
Gapen predicted an inflection point. “Jobless claims suggest that’s ahead. Since April, jobless claims have risen, but they’re still historically low. Weekly unemployment claims jumped 6,000 to 260,000 for the week ended July 30.
Gapen forecasts negative job growth by year’s end, followed by monthly projections of 150,000 job losses. He anticipates a modest recession.
Swonk predicts monthly payroll losses of 100,000 to 200,000.
Zandi doesn’t predict a recession and thinks the Fed is trying to avoid huge job losses. He predicted zero payroll.
“If the Fed could draw a line, they’d say negative numbers mean more unemployment. Reduce wage growth. Productivity growth brings it. Zandi stated that’s their plan.
In a strong economy, job growth can be as high as 100,000 each month, according to Zandi. Private sector payrolls have surpassed February 2020 by 140,000 people, according to the BLS.
Fed Chair Jerome Powell cites the strong labour market as one reason he doesn’t believe the economy is in a recession despite back-to-back negative GDP quarters. Usually, two quarters of contraction and other signs like rising unemployment signal a recession, but for now the economy is in a technical recession.
The Fed will review two employment reports before deciding whether to hike interest rates in September. Some economists expect officials to slow rate hikes to a half percentage point from the three-quarter point hikes in June and July.
Markets will focus on job growth and pay growth, which is likely to decrease. Wages are forecast to climb 4.9% year-over-year, slower than June’s 5.1% pace.
Sameer Samana, senior global market strategist at Wells Fargo Investment Institute, said markets are more likely to be disappointed than positively surprised. If the labour market cools fast, it might spark a surge.
Samana said investors will be dissatisfied by higher pay. People expect inflation to fall and the Fed to turn shortly, which might precipitate a sell-off. We disagree.
Wells Fargo Investment Institute predicts 4.3% unemployment by 2022. “A lot of layoff announcements could leak into claims and employment numbers in the fourth quarter,” said Samana.
“Companies may be cautious to hire,” he said. Samana suggested labour hoarding. “Companies say it’s so hard to hire that they’ll keep workers through the recession.”
Gapen said a good jobs report would strengthen the Fed’s hawkish position.
“What’s the Fed’s response?”
Gapen: “It tightens. Stronger data suggests Fed tightening.
The Fed won’t fight a labour market downturn. It desires”
