How weak will the labor market be?
We have arrived on the eve of the festival The most important jobs report in years.
The Bureau of Labor Statistics will release its results on Friday Two surveys of employers and households What the government likes to call the “employment situation”. The rest of us call it a “job report.”
Survey of Employers – Known as Unhelpful “Foundation Survey” or “payroll survey”—tells us how the size of the payroll has changed since the previous month. This is the source of the headlines that tell us that the US economy added a lot of jobs in a month—or, in bad times, lost a lot of jobs. We also get details on which parts of the economy—such as manufacturing, leisure and hospitality, health and social services—added jobs.
The Survey of American Families—helpfully called “Household Survey”-Our source for things like the unemployment rate, labor force participation rate, and number of disengaged workers.
While there has been some interest in the surveys over the past few years, they have been lagging behind government reports on inflation. But now inflation is retreating and unemployment is rising, The employment situation is again in focus.
One of the reasons analysts and investors are turning their attention to employment is because Jerome Powell and his colleagues at the Federal Reserve have noticed. In his speech at Jackson Hole, Powell made it very clear The Fed wants to support the labor market And more gentleness will not be welcomed.
“We do not want or welcome further cooling in labor market conditions,” Powell said.
Tripping the consensus bearish indicator
There is a little question The labor market has cooled significantly. Job vacancies fell to 7.7 million at the end of July, close to where they were before the pandemic and well below a peak of more than 12 million in 2022. The unemployment rate rose to 4.3 percent in July from 3.4 percent in April. of 2023.
The unemployment rate last month also crossed the consensus rule threshold, an important recession indicator, pushing the three-month average more than half a percentage point above last year’s lowest three-month average. While economist Claudia Sahm, inventor of the Sahm Rule, says it may be different this time, crossing the Sahm line is definitely Concerns were raised that the economy could be weaker than it was Just a few months ago.
Because A large increase in unemployment is rare unless the economy is in recession. What’s more, rising unemployment has historically become a vicious cycle. Less employment usually means less spending, which leads to more layoffs, and increased layoffs lead to fears about job security, prompting a cautious pullback in spending, which leads to more layoffs.
Until now though Layoffs are rareThe minimum is determined by the number of weekly jobless claims. Last week, for example, the government recorded nearly 227,000 initial claims for jobless benefits. That’s exactly where claims were in the final year of the pre-pandemic Trump administration.
Wall Street expects between 100,000 and 195,000 workers to be added to payrolls in August, according to an establishment survey, a wide range of forecasts. Economic data illustrates how difficult it is to predict right now. The average forecast is for 160,000. The unemployment rate is expected to inch lower to 4.2 percent, though forecasts ranged from a decline of 4.1 percent to 4.4 percent.
The Fed is said to have a dual mandate to promote stable prices and maximum employment. It actually is The triple command Under the law because it is also considered To promote “moderate interest rates”. But no one remembers that part of the command. If it were to become an operational part of the Fed’s mission, one wonders whether things like zero-interest rate policies would be permitted.
The Fed sees its mission from fighting inflation to fighting unemployment. A big disappointment in the jobs figure or an expected increase in unemployment could very well happen Trigger a 50 basis point cut from the Fed When it meets later this month.
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