A 'We Are Hiring' sign is seen in front of a restaurant in Los Angeles, California in August 2022

Slow down or not? The US labor market is on a tight rope

“We’re hiring” sign in front of a restaurant in Los Angeles, California, August 2022 – Copyright AFP Frederic J. BROWN

Julie Chabanas

The number of “Help Wanted” signs in the United States may have declined in August, but the job situation remains tense, official data is expected to show on Friday.

The general consensus is that the unemployment rate in August should fall by about 3.5 percent when official data is released at 8:30 am (1230 GMT).

If the estimate turns out to be correct, it will be the same level as in July, when unemployment first returned to its pre-pandemic level, which was the lowest in 50 years.

On the other hand, job creation is expected to slow sharply, dropping to 300,000 – almost half of what it was in July.

Data on private sector jobs created in August was already disappointing, with US employers cutting jobs per month to 132,000, according to data released on Wednesday by payroll company ADP, a far cry from the 315,000 jobs expected.

“We think these numbers signal a shift towards more moderate hiring,” Nela Richardson, chief economist at ADP, said on a conference call.

Firms of all sizes are trying to “read what has become a complex economic picture” due to high inflation and a shortage of workers at a time when employers are looking to hire on a large scale.

Neither the recession, nor fears of a recession, nor the actions of the Federal Reserve System to contain the soaring inflation did not lead to a weakening of the hot labor market.

In July, the labor market showed particular dynamics, returning to pre-pandemic levels.

The unemployment rate fell to a historical low of 3.5 percent as 22 million jobs lost due to Covid-19 returned.

By the end of the month, there were over 11 million vacancies, or two for every applicant. Just over four million Americans quit their jobs in July, and so did June.

– “A Little Pain” –

Meanwhile, weekly jobless claims, which provide a glimpse of layoffs, declined nearly every week in August and remain at historically low levels.

“Labor market conditions remain challenging despite fairly weak economic growth,” Nancy Vanden Houten, chief economist at Oxford Economics, said in a note Thursday.

US GDP contracted in the first two quarters of 2022, which falls under the classic definition of a recession.

But due to the pronounced labor market, the US economy does not seem to fall under the label of recession yet.

The August jobs report is expected to reinforce the Federal Reserve’s commitment to raising interest rates.

An increase in the Fed’s interest rate against high inflation is likely to lead to a slowdown in employment growth and even an increase in the unemployment rate.

Federal Reserve Chairman Jerome Powell highlighted the point last week at a conference in Jackson Hole, Wyoming, warning of “some challenges for households and businesses” and a “softer job market.”

As companies have been facing labor shortages for more than a year, many are offering higher wages, which in turn drives up prices.

Against the backdrop of soaring inflation, the Fed gradually raised the key rate, making credit more expensive and thus slowing down consumption, as well as pressure on prices.

He is expected to raise rates again at his next meeting on September 20 and 21. He will take a serious look at Friday’s employment data to determine the extent of the rate hike.

A slowdown in the labor market may indicate that the Fed’s interest rate hike has finally paid off, while labor market tightness will force the Fed to act more decisively.

Inflation, the highest in 40 years, slowed to 8.5% year-over-year in July, according to the consumer price index.

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