sb.scorecardresearch

Updated 13:17 IST, August 2nd 2024

US employment expected to have grown moderately in July, easing recession fears

Nonfarm payrolls likely increased by 175,000 jobs in July, following a rise of 206,000 in June, according to a Reuters survey of economists.

Reported by: Business Desk
Follow: Google News Icon
  • share
Unemployment
Unemployment | Image: Pixabay

US job growth steady: US employment is projected to have grown at a moderate yet solid pace in July, potentially alleviating concerns about a sharp decline in the labour market following a spike in the unemployment rate to a 2.5-year high of 4.1 per cent in June.

Hurricane Beryl likely contributed to the anticipated moderation in job growth last month. The Labour Department's highly anticipated employment report on Friday could strengthen the case for a September interest rate cut by the Federal Reserve, as the annual wage increase last month is estimated to be the smallest in over three years.

Market steady, inflation falls

This report would align with recent data on prices, productivity, and labour costs, reinforcing that inflation is on a clear downward trend. Both policymakers and economists are closely monitoring the labour market for signs of a disorderly slowdown that could threaten economic expansion.

"The labour market is in a good place, but there have been clear signs that momentum has also been slowing," said Ernie Tedeschi, director of economics at The Budget Lab at Yale. "It is slowing in a manner that is consistent with a labour market that is reaching a ceiling, not deteriorating."

Nonfarm payrolls rise moderately

Nonfarm payrolls likely increased by 175,000 jobs in July, following a rise of 206,000 in June, according to a Reuters survey of economists. Employment gains averaged 222,000 per month in the first half of this year. Economists say at least 200,000 jobs per month are needed to keep up with the growth in the working-age population, especially considering a recent surge in immigration.

With immigration slowing, they expect the economy would only need to create roughly 150,000 jobs per month moving forward.

The labour market slowdown is being driven by reduced hiring rather than layoffs, as the US central bank's rate hikes in 2022 and 2023 have dampened demand. Government data this week showed hires dropped to a four-year low in June.

Fed Chair Jerome Powell told media on Wednesday that while he viewed changes in the labour market as "broadly consistent with a normalisation process," policymakers were "closely monitoring to see whether it starts to show signs that it's more than that."

Fed eyes rate cuts

The Fed has kept its benchmark overnight interest rate in the 5.25-5.50 per cent range since last July. However, the central bank has indicated that it might reduce borrowing costs as soon as its next meeting in September, with financial markets also expecting cuts in November and December.

Economists estimate that Hurricane Beryl, which caused power outages in Texas and hit parts of Louisiana during the payrolls survey week, may have reduced employment by as much as 30,000 jobs.

Most of this impact is likely in the construction, leisure and hospitality, transportation, and retail sectors. Some of the losses could be offset by delays in automobile manufacturers idling plants for new model retooling.

"The slowing we expect in July would likely underestimate the true underlying pace of job creation," said Yelena Shulyatyeva, a senior economist at BNP Paribas. "The hurricane distortions are expected to reverse in August."

Beryl also likely boosted average hourly earnings, as many of the workers kept at home were employed in low-wage industries. It could also have reduced hours worked.

Earnings rise gradually

Average hourly earnings were forecast to rise by 0.3 per cent, matching June's gain. Over the 12 months through July, wages were estimated to have increased by 3.7 per cent, marking the smallest year-on-year gain since May 2021 and following a 3.9 per cent rise in June.

Although wage growth would remain above the 3-3.5 per cent range seen as consistent with the Fed's 2 per cent inflation target, it would continue the trend of inflation-friendly data.

The unemployment rate was forecast to remain unchanged at 4.1 per cent after rising for three consecutive months. It has increased from a five-decade low of 3.4 per cent in April 2023, prompting recession concerns. However, economists have dismissed these fears, noting that layoffs remain historically low.

"This is important because it means the economy is not experiencing the usual vicious circle in which job and income loss lead laid-off workers to reduce their spending, leading to further job loss," economists at Goldman Sachs wrote in a note.

"The increase in the unemployment rate has instead come partly from a surge in labour supply driven by immigration, with which job growth has not quite kept up."


(With Reuters Inputs)

Published 12:58 IST, August 2nd 2024