The US economy is expected to have gained about 250,000 jobs last month, according to Refinitiv. While that’s far from the average monthly gain of 456K so far this year, it’s not an indication that the sky is falling, economists say. In fact, that is exactly what the Fed wants to see.
A more sustainable pace of employment growth is part of the Fed’s game plan as the central bank looks to stamp out high inflation without completely changing the labor market or causing a recession.
“If we get a number that is anything like the June number, the Fed is really going to be worried, and I think we all will,” said Dean Baker, chief economist and co-founder of the Center for Economics and Policy Research. “You have to see a slowdown in the labor market that you hope is starting now. And if there’s no evidence of that in July, that’s a problem.”
A moderation in the pace of monthly job gains has been expected for some time now as the labor market recovers from the 21 million job losses destroyed at the start of the pandemic. Over the past two years, the economy has been restoring jobs at a historic rate, including an average of nearly 562,000 jobs per month last year, according to data from the Bureau of Labor Statistics.
In addition, initial weekly jobless claims rose slowly. For the week ending July 30, initial applications for unemployment benefits reached 260,000. That’s 6,000 higher than the previous week, which was revised down by 2,000, according to BLS data released Thursday.
While many eyes will be trained on Friday’s headline figure and the unemployment rate – which is expected to remain steady at 3.6% – Baker and other economists are also paying close attention to data points such as average hourly wages and labor force. Participation rate.
“Wages are really front and center in this matter,” Baker said. “Wage growth was over 6% last fall, and I think everyone would agree that if we keep wage growth at 6%, we’re going to have high inflation. I don’t see any way around that.”
Sarah House, chief economist at Wells Fargo, said the average hourly earnings figure could provide a timely data point on how wages are trending.
“I think at the end of the day as we see labor demand cool – we see that in jobs, we see that in employment plans – we expect to see some moderation in the pace of earnings growth depending on the direction,” House said.
With the focus still on the major resignations, another key indicator to look at is the workforce participation rate, which fell to 62.2% in June, below the pre-pandemic level of 63.3%. These “missing workers” have left the workforce over the past two years in large part due to COVID-related illness and care responsibilities, as well as due to early retirement and the overall aging of the working population.
“There are still a lot of people under 55 who have left the workforce and haven’t come back. There are over a million of them, and I still expect quite a few of those people to come back,” David Merkel, chief US economist at Goldman Sachs, told CNN. CNN Business. “But the more that time passes, the more difficult it is to be sure.”
If more people return to the market, it could fit well into the Fed’s overall game rules, said Daniel Chow, chief economist at Glassdoor.
“I actually think what would be really positive from the Fed’s point of view is if labor force participation goes up along with a slowdown in wage growth, because that’s really the best way to expand access to jobs while keeping inflationary pressures low,” he said. .