July expected to have the fewest jobs added since December 2020, but still a boom in action, according to ANBLEs.

July expected to have the fewest jobs added since December 2020, but still a boom in action, according to ANBLEs.

The Labor Market Remains Sturdy Despite Higher Interest Rates

The latest jobs report from the Labor Department, released on Friday, is expected to show that employers added 200,000 jobs in the past month. While this is the lowest number since December 2020, it is still a healthy figure, indicating that the U.S. labor market remains robust. This is particularly noteworthy as interest rates have been on the rise.

Despite concerns of an impending recession, the U.S. economy and job market have consistently defied predictions. ANBLEs (Analysts, Economists, and Market Experts) are increasingly expressing confidence that the Federal Reserve can achieve a rare “soft landing” by raising interest rates just enough to curb rising prices without pushing the economy into a recession. In line with this, consumer confidence has reached its highest level in two years, according to the Conference Board, a business research group.

However, it is essential to acknowledge that the eleven interest rate hikes by the Federal Reserve since March 2022 have had an impact. Job growth has averaged 278,000 jobs per month this year, which is still impressive by historical standards. However, it represents a significant decline from the record-breaking 606,000 jobs per month in 2021 and the 399,000 jobs per month last year, as the U.S. economy rebounded from the brief but severe recession caused by the pandemic in 2020.

There are also signs that the job market, although still healthy, is losing momentum. The Labor Department reported that job openings fell below 9.6 million in June, the lowest level in over two years. Nonetheless, it is worth noting that this is still significantly higher than the average of job openings prior to 2021, which never exceeded 8 million. Furthermore, the number of people quitting their jobs, often seen as a sign of confidence they can find better opportunities elsewhere, fell in June but remains higher than pre-pandemic levels.

The Federal Reserve’s goal is to cool off the hiring spree. Strong demand for workers can lead to wage inflation, forcing companies to increase prices to compensate for higher labor costs. However, one encouraging sign from the Fed’s perspective is the return of more Americans to the job market. This increased labor force participation makes it easier for employers to find and retain workers without resorting to substantial pay increases.

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The pandemic prompted many older workers to retire earlier than planned, while health concerns and childcare challenges kept others on the sidelines. As a result, the labor force participation rate dropped to 60.1% in April 2020, the lowest level since 1973 when many American women did not work outside the home. Since then, the participation rate has made a partial recovery as health worries diminished and wages rose. For individuals in their prime working years (25 to 54), the participation rate reached 83.5% in June, the highest since 2002. Additionally, in June, 77.8% of prime-age women were either employed or actively seeking work, the highest share recorded since 1948.

Another factor contributing to the availability of workers is the rebound in immigration following the lifting of COVID-19 border restrictions. The increased workforce, combined with cooling labor market conditions, has resulted in reduced wage pressures. However, wage growth remains relatively intense and is still a concern for the Federal Reserve. Average hourly pay in July is anticipated to have increased by 4.2% compared to the previous year, which is a deceleration from the 4.4% year-over-year increase observed in June.

Although there has been a steady decline, overall inflation still exceeds the Federal Reserve’s target of 2%. In June, consumer prices were up 3% from the previous year, down from the 9.1% year-over-year increase in June 2022, which marked the highest jump in four decades.

The combination of decreasing inflation and continued economic strength is alleviating fears of an imminent recession in the United States. ANBLEs, such as Bill Adams, the Chief ANBLE at Comerica Bank in Dallas, argue that it is now much more plausible for the economy to reach the Federal Reserve’s target without a severe downturn.

In conclusion, the U.S. labor market has demonstrated resilience despite higher interest rates. Job growth remains healthy, although it has somewhat slowed compared to previous years. The return of workers to the job market, coupled with the rebound in immigration, has helped ease wage pressures. While overall inflation remains above target, it has shown a downward trend. These factors collectively support the view that a recession in the near future or in 2024 is less likely. The U.S. economy, buoyed by consumer confidence and prudent Federal Reserve policies, continues to navigate the challenges posed by interest rates and inflation with resilience and optimism.