Source: Jin10 Data
Some economists believe that the labor market in the USA has not driven inflation upward...
US job growth in June may slow but remains at a healthy level with unemployment rate staying at 4%, increasing the possibility for the Federal Reserve to curb inflation without causing an economic recession.
The US Labor Department is scheduled to release its highly watched non-farm payroll report on Friday. The report is expected to show the first slowdown in wage growth in three years, combined with modest inflation decline in May. This may confirm that the anti-inflation trend has returned to a positive track and strengthen the confidence of Federal Reserve policymakers on inflation prospects, bringing them closer to beginning rate cuts later this year.
Financial markets still believe that the Fed will start its easing cycle in September. Prior to this, the Fed actively tightened monetary policy in 2022 and 2023. Fed Chairman Powell said this week that the United States has returned to an "anti-inflation track," but he emphasized that policymakers need more data to cut interest rates.
"The economy is entering a reasonable and sustainable pace of employment growth," said Brian Bethune, an economics professor at Boston College. "There is no sign of any sudden decline, and there is no sign that we will suddenly collapse. The US economy is still basically on the path of a soft landing."
A survey by Reuters of economists showed that non-farm employment may have increased by 0.19 million last month, compared to 0.272 million in May. Over the past 12 months, the US added an average of about 0.23 million jobs per month.
Economists say that to keep pace with the growth of the working-age population, the US economy needs to create at least 0.15 million jobs per month to offset the recent surge in immigration. The unemployment rate rose to 4.0% in May, the first time since January 2022. Some economists expect the unemployment rate to fall to 3.9% in June.
A lagging employment indicator, the Quarterly Census of Employment and Wages (QCEW), showed that job growth in the fourth quarter of 2023 was much slower than wage data. QCEW data comes from reports submitted by employers to state unemployment insurance programs.
But economists believe that QCEW data does not include undocumented immigrants, and they believe that undocumented immigrants have contributed to strong job growth last year. The US Labor Department's Bureau of Labor Statistics will release its benchmark wage estimates for the past 12 months ending in March of this year next month.
"Employment numbers may be revised downward, but we believe this is not because this data is overestimated, but because QCEW data is underestimated," said Morgan Stanley economist Sam Coffin. "Because QCEW may miss statistics on undocumented immigrants, if a person has no work permit, then he is not eligible to receive unemployment benefits. In contrast, the wage survey requires companies to count employees regardless of legal status."
Currently, recruitment in the United States is mainly driven by industries such as medical care, leisure and hospitality, and state and local government education. The staffing levels of these industries have returned to pre-epidemic levels, and this trend may continue in June, but at a slower pace than in the past few months.
Most of the employment in these industries has already returned to the 2019 level, and the 525 basis points interest rate increase implemented by the Fed since 2022 has already affected enterprises. "To re-staff, a lot of compensatory recruitment is needed, but this has basically been completed in many different industries," said Sarah House, a senior economist at Wells Fargo.
Despite the cooling of the labor market, wage growth is still strong enough to support consumer spending and overall economic expansion.
The market expects that average hourly wages will increase by 0.3% month-on-month in June, lower than the previous value of 0.4%. In addition, this will lower the year-on-year wage growth rate to 3.9%, the lowest increase since June 2021. A wage growth range of 3%-3.5% is considered consistent with the Fed's inflation target of 2%.
The Federal Reserve has kept the federal funds rate in the current range of 5.25% to 5.50% since July of last year. The minutes of the Fed's meeting on Thursday showed that policymakers acknowledged that the economy seemed to be slowing down and that "price pressures were weakening."
Economists believe that the labor market has not pushed inflation up, and they noted that worker productivity has rebounded, raising concerns that the Fed may suppress economic growth by keeping borrowing costs high for too long. "Wage growth has been high all along, but now it has fallen. Productivity growth has recovered to a normal relationship with wage growth, so there is not much difference between the two. Now it seems unnecessary to limit the labor market to suppress inflation," said Kevin Rinz, a senior researcher at the Washington Center for Equitable Growth.
"There is still a possibility of downward revision of employment numbers, but we believe this is not because this data is overestimated, but because QCEW data is underestimated," said Morgan Stanley economist Sam Coffin. "Because QCEW may miss statistics on undocumented immigrants, if a person has no work permit, then he is not eligible to receive unemployment benefits. In contrast, the wage survey requires companies to count employees regardless of legal status."
Editor / jayden