US job growth expected to slow down, unemployment rate to remain steady

It also could boost Fed policymakers’ confidence in the inflation outlook and push the US central bank a step closer to start cutting rates later this year.

 

Financial markets remain optimistic the Fed could start its easing cycle in September after aggressively tightening monetary policy in 2022 and 2023. Fed Chair Jerome Powell said this week that the economy was back on a “disinflationary path,” but stressed policymakers needed more data before cutting rates.

 

“The economy is moving into a reasonable and sustainable, pace of employment growth,” said Brian Bethune, an economics professor at Boston College. “There’s no evidence of any sudden decline, nothing that would suggest we’re suddenly going to tip over. We’re still basically tracking a ‘soft landing.'” Nonfarm payrolls likely increased by 190,000 jobs last month after surging by 272,000 in May, according to a Reuters survey of economists. Employment gains have averaged about 230,000 jobs per month over the past 12 months.

 

Economists say the economy needs to create at least 150,000 jobs per month to keep up with growth in the working-age population, accounting for the recent surge in immigration.

 

The jobless rate rose to 4.0 per cent in May for the first time since January 2022, boosted by volatile youth unemployment. Some economists expected it to drop back to 3.9 per cent in June.

 

A lagging measure of employment, the Quarterly Census of Employment and Wages (QCEW), has suggested a much slower pace of job growth through the fourth quarter of 2023 than that of the payrolls data. The QCEW data is derived from reports by employers to the state unemployment insurance (UI) programs.

 

Benchmark estimate

 

But economists argue the QCEW data does not include undocumented immigrants, a group that they believe contributed to strong job growth last year. The Labor Department’s Bureau of Labor Statistics will publish next month its payrolls benchmark estimate for the 12 months through March of this year.

 

Employment in these sectors is mostly back at 2019 levels, and the 525 basis points worth of rate hikes from the Fed since 2022 to curb inflation has weighed on business formation.

 

Excess savings accumulated during the COVID-19 pandemic have been exhausted, contributing to a slowdown in demand for both labor, goods and services.

 

“There’s been a lot of the catch-up hiring that needed to be done to get businesses re-staffed again,” said Sarah House, a senior economist at Wells Fargo. “That’s largely complete across a lot of different sectors.”

Even as the labor market is cooling, wage growth remains sufficient to sustain consumer spending and the overall economic expansion.

Average hourly earnings are forecast to have risen 0.3 per cent in June after climbing 0.4 per cent in May. That would lower the annual increase in wages to 3.9 per cent, the smallest gain since June 2021, from 4.1 per cent in May. Wage growth in a 3 per cent-3.5 per cent range is seen as consistent with the Fed’s 2 per cent inflation target.

 

The central bank has maintained its benchmark overnight interest rate in the current 5.25 per cent-5.50 per cent range since last July.

 

The minutes of the Fed’s June 11-12 meeting, which were published on Wednesday, showed policymakers acknowledged the economy appeared to be slowing and that “price pressures were diminishing.”

 

Economists argue the labor market is not driving up inflation, noting that worker productivity has picked up, and worry that the Fed could stifle growth by keeping borrowing costs elevated for too long.

 

First Published: Jul 05 2024 | 10:02 AM IST