Small fever drop in the American job market
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The pace of hiring in the United States in August turned out to be less torrid than in July. And this is relatively reassuring news for investors worried about the inflationary effects of overheating.
In Washington,
According to the Labor Department, net job creation last month was 315,000, a figure broadly in line with expectations of strong labor demand. The estimate of hiring in June was also revised down sharply, while that of July, which had shocked by its magnitude, is practically unchanged at 526,000 jobs.
Other rather favorable news: an indicator of soaring wages now only flashes orange, and no longer red. Average hourly wages in fact only climbed in August by 0.3% against 0.5% in July. In addition, the unemployment rate which is calculated on the basis of another survey carried out among households, and not businesses, rises from 3.5 to 3.7%.
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We also note an increase in the labor force participation rate from 62.1% in July to 62.4%. It seems to indicate the return to work of people of working age who had chosen to leave the labor market. A record nearly 159 million Americans are employed today. We are clearly back above the level of 152.1 million in January 2020, prior to the pandemic. Since the lowest point in employment during the lockdown in April 2020, almost 22 million jobs have been created.
Little room for maneuver for the Fed
Taken together, these statistics give the Federal Reserve a little leeway in driving its key rate hike. They reflect a growing US economy, despite high inflation which is eating into consumers’ purchasing power. The risk of a very short-term recession is receding, which will encourage the Fed in its approach to rate hikes. However, the rise in unemployment and the slowdown in hiring are moving in the direction desired by Jerome Powell and his colleagues.
In order to fight overheating that triggered the strongest wave of inflation in over 40 years, the Fed has promised to raise the “federal funds” rate for a long time, until price stability appears to be restored. It has already increased this rate gradually from zero in March to 2.5% on July 27. A further rise is likely on September 21 following the meeting of the Fed’s monetary committee. The signal given by the evolution of hiring does not oblige Jerome Powell and his colleagues to increase their rate by 0.75% instead of 0.50%. This possibility remains credible, as the members of the monetary committee have hinted in recent days that they envisage a rise in “federal funds” to some 4% by winter.
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Last week Jerome Powell, during the Jackson Hole symposium, took care to emphasize that “all the data that will reach us and the evolution of the outlook” will be taken into account to decide on the September 21 key rate increase. It is on this date that the monetary committee of the central bank must render its decision. Until then another important indication is expected. This is the consumer price index for August which will be published on September 13th.
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