Job growth was likely strong in July, but may slow soon

An employee checks a customer at Paulina’s Meat Market in the Lakeview neighborhood of Chicago, Illinois, June 28, 2022.

Bianca flowers | Reuters

Employers are likely to add fewer jobs in July, but the monthly employment report is still expected to show a strong pace of hiring which should decline in the coming months.

Economists expect 258,000 jobs to be added, down from 372,000 in June, according to Dow Jones. The unemployment rate is expected to remain steady at 3.6% while wages are expected to rise by 0.3%. The jobs report is released Friday at 8:30 a.m. ET.

“I think it should be a hit zone type report,” said Mark Zandi, chief economist at Moody’s Analytics. “You got more layoffs, initial claims went up and you had fewer hires because vacancies went down…we were close to 400,000 [new jobs] Last month, 500,000 the previous month. Models say 225,000″.

The labor market is in a state of constant change. Employment is expected to slow as the Federal Reserve raises interest rates to cool inflation – and the economy. But companies are still looking for employment as they struggle with a labor shortage.

This consideration and shift by consumers to spend on services, such as travel rather than goods, means that some industries are experiencing strong growth while others are likely to decline. For example, more jobs are expected in healthcare, entertainment and leisure but less in manufacturing. Construction jobs can show a loss.

“As long as you get past 200,000, you’re still doing better than before the pandemic and you’re still going strong,” said Diane Sonk, chief economist at KPMG. “It’s not feeling well, because it’s accompanied by inflation.”

Companies like Walmart, Amazon and Tesla have already planned layoffs, and economists expect to see more job losses from companies in construction, technology, retail and finance, among other things.

As the Federal Reserve continues to raise interest rates, economists expect more and more force to exit the labor market. By the end of the year, some say the huge gains in monthly job growth could turn into actual declines. By then, the Fed’s target interest rate, at zero before the March rate hike, could stand at 3.25% to 3.5%, according to the central bank’s latest forecast.

The scourge of equal opportunity

“Right now, inflation is hurting everyone. It’s an equal opportunity disaster at this point,” said Michael Gaben, chief US economist at Bank of America. “What policymakers are facing is pushing the unemployment rate higher.”

Inflation continued to rise in June, with the CPI jumping 9.1%. But economists expect inflation to have peaked, and job growth appears to have peaked now.

“Somewhere here, there’s going to be an inflection point,” Gaben said. “The trend in unemployment claims is that this is ahead. Claims for unemployment benefits have risen since April, but are still very low on historical trends.”

Weekly jobless claims rose by 6000 to 260,000 for the week ending July 30, near the highest level since last November.

Gaben expects job growth to turn negative by the end of the year, followed by the possibility of several monthly reports of job losses of up to 150,000. He expects a shallow recession by then.

Swonk said she also sees the payroll turn negative, with monthly job losses between 100,000 and 200,000.

Zandi said he does not currently expect a recession, and believes the central bank is trying to engineer a smooth landing without major job losses. He said the salary figures could be around zero.

“If the Fed could draw a line, the line they would draw is you go straight to the negative numbers and you have a higher unemployment score. You remove the power of any wage growth. You get it in line with any productivity growth,” Zandi said.

Zandi said job growth in a healthy economy could be more than 100,000 from the huge monthly numbers that came with rebuilding the economy after the Covid-19 shutdown. According to the Bureau of Labor Statistics, private sector payrolls exceeded the number of workers in February 2020 by 140 thousand employees.

Fed Chair Jerome Powell cited a strong labor market as one of the reasons he doesn’t think the economy is currently in a recession, despite consecutive quarters of negative GDP. Normally, two quarters of deflation could indicate a recession, along with other factors, such as rising unemployment, but at the moment the economy is seen as just a technical recession.

This employment report is one of two reports the Federal Reserve will watch before it decides how much to raise interest rates at its September meeting. Some economists expect policy makers to slow their rate increases and raise only half a percentage point instead of the three-quarters point increases they made in June and July.

Key to wage growth

The markets will depend on the strength of the number of workers added, and on wage growth, which is expected to slow slightly. Wages are expected to rise 4.9% from the same period last year, slower than June’s pace of 5.1%.

“Given the fact that we are really well driven in number, there is more chance of disappointment than there is for markets to be positively surprised,” said Sameer Samana, chief global market strategist at Wells Fargo Investment Institute. “If you get positive information that the job market is cooling down quickly, it could lead to an additional hike from here.”

If wages are higher than expected, Samana said, investors will be disappointed. “That could lead to a little bit of heavy selling, because people tend to have this expectation that inflation is going down and that the Fed might turn into a pivot soon. And that, to us, is misleading.”

Wells Fargo Investment Institute expects the unemployment rate to rise to 4.3% by the end of 2022. “A lot of that could happen in the fourth quarter as a lot of layoffs start feeding into the claims and employment data.” calf.

“You can see companies are becoming more reluctant to hire,” he said. Samana added that there may be some labor hoarding. “We’re hearing from companies that it’s so hard to hire that they’ll keep their employees through a downturn.”

If the job number is as expected or stronger, Gaben said, it will reinforce the Fed’s hawkish stance.

“What does that get from the Fed? It brings more tightening,” Gaben said. “Stronger data right now means more Fed tightening. It’s not a world where the Fed will lean against a slowdown in the labor market. It actively wants to.”

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