US jobs report likely to show a solid gain, potentially complicating Fed’s drive to cool inflation

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Washington (AFP) – Another strong month of U.S. employment is expected on Friday, a result that would indicate no recession is imminent but could make it difficult for the Federal Reserve to succeed in its effort to cool the economy and rein in a rally. inflation.

Employers are expected to add 205,000 jobs in June, according to economists polled by data firm FactSet. Although the recent monthly earnings were down, that would represent a healthy increase and reflect a historically high number of advertised vacancies.

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Continued strong employment would underscore the economy’s surprising resilience as the Fed raised its key interest rate by a whopping 5 percentage points – the fastest pace of rate hikes in four decades. These increases have made mortgages, auto loans, and other forms of borrowing much more expensive. However, consumers are still increasing their spending, if only modestly, providing an incentive for some companies to continue hiring and expanding.

Economists forecast that the unemployment rate fell last month from 3.7% to 3.6%, near its lowest level in five decades.

Even a modest job gain for June would almost boost the likelihood that the Federal Reserve will resume raising interest rates when it meets later this month. Before stopping last month, the central bank boosted its benchmark interest rate 10 times in a row. Chairman Jerome Powell said at the time that the Fed skipped the rate hike so that policymakers could assess the acute impact of higher borrowing costs on the economy.

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When they met in June, Fed policymakers indicated that they envisioned an additional quarter-point hike before the end of the year. Previously, Fed watchers had expected officials to signal only one rate hike this year. Their updated forecasts reflected many Fed officials’ belief that they need to do more to beat inflation, which has fallen sharply from its peak, but at 4% is still well above the Fed’s 2% target.

On Thursday, Lori Logan, President of the Federal Reserve Bank of Dallas, noted that persistently high inflation and a “stronger-than-expected job market” mean borrowing costs must rise further.

“I remain very concerned about whether inflation will return to target in a timely and sustainable manner,” Logan said in remarks at a central banking conference in New York. “And I think there will be a need for more restrictive monetary policy.”

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Other Fed officials are looking for signs of what they describe as a better balance in the labor market, which means the supply and demand for workers will become more equal. After the economy emerged from the pandemic, the number of available jobs rose to more than 10 million – an all-time high. This increased demand for labor has coincided with millions of Americans exiting the workforce to retire, avoid the coronavirus, care for relatives, or prepare for new careers.

With companies struggling to fill so many job vacancies, many have offered sharply higher salaries and better benefits to attract or retain employees. Federal Reserve officials remain concerned that rising wage levels will keep inflation chronically high once companies pass on rising labor costs by raising prices.

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There has been some progress towards better matching supply and demand: about two million people have started looking for work in the past seven months, and most have found jobs. As the supply of workers improves, companies say they are seeing more people applying for open positions. The number of vacancies decreased in May, in a sign that demand for workers is gradually easing, although it is still higher than in pre-pandemic times.

In another sign of a possible slowdown in the labor market, fewer Americans are leaving their jobs to look for new ones. Smoking cessation cases rose after the pandemic. Millions of Americans have sought meaningful or better-paying jobs, increasing pressure on companies to increase salaries to keep their employees. In May, about 4 million Americans left their jobs, up from April’s figure but below the peak of 4.5 million reached last year.

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said Luke Pardue, economist at Gusto, which makes payroll software for small and medium businesses.

However, other recent reports indicate that the economy has continued to expand and that demand for workers remains high. On Thursday, a survey of service providers — including banks, restaurants and shipping companies — found that the sector expanded healthily in June and that service companies accelerated hiring compared to May.

Also on Thursday, payroll provider ADP reported a massive increase in hiring by private sector employers in June – 497,000 additional jobs. However, ADP employment numbers often differ from official government data.

“Time and time again, economists and analysts have predicted a strong slowdown in job numbers, which has not materialized over the past six months,” Pardo said. “Despite many calls for a near-term recession, the job market remains surprisingly resilient.”

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