June’s Cooler Hiring Could Aid Fed’s Pursuit of a ‘Soft Landing’ for US Economy

by Andrew Wright
economic strength

In June, the American job market continued to make steady progress, albeit at a slower pace. Businesses and government agencies added 209,000 jobs, marking the smallest monthly gain in two and a half years. However, this increase was still substantial enough to lower the unemployment rate from 3.7% to 3.6%, just above its lowest point in fifty years. These figures reinforce the notion that the economy has defied persistent predictions of a recession.

The latest employment data indicates that the Federal Reserve will likely resume its interest rate hikes later this month. The Fed had previously implemented ten consecutive rate increases to curb high inflation, but the recent economic strength suggests that their efforts have been effective.

Simultaneously, Friday’s government report also revealed signs of the job market cooling down to a more sustainable growth rate. This trend, if it persists, could provide reassurance to the Federal Reserve that its rate hikes are successfully curbing inflationary pressures without derailing the economy.

Julia Coronado, president of MacroPolicy Perspectives, described the employment report as a “Goldilocks” scenario, with a labor market that is resilient—neither too hot nor too cool.

What Factors Contribute to Consistent Hiring?

Despite challenges such as elevated inflation and concerns over a potential recession resulting from the Federal Reserve’s actions to control price increases, several factors are helping sustain hiring. Industries sensitive to higher borrowing costs, including housing and car sales, have seemingly adjusted to the Fed’s rate increases. For instance, while mortgage rates have nearly doubled in the past 15 months, most of that increase occurred by the end of last year. Recent months have seen signs of a housing rebound, with increased sales and new construction.

In a surprising turn of events, construction and manufacturing have added jobs despite higher interest rates. Construction companies are benefiting from infrastructure spending initiated by the Biden administration, leading to increased demand for their services. Furthermore, reduced supply in the housing market is driving more construction activity and job creation. Auto sales have also risen due to pent-up demand, compensating for the impact of higher loan rates.

Moreover, a significant portion of the U.S. economy comprises services, such as banking, restaurants, and shipping, which are less affected by the Federal Reserve’s rate hikes.

Indicators of Cooling in the Job Market

The visible sign of hiring slowing down is that fewer industries are adding jobs. Most of the job growth in June came from three sectors—state and local governments, health care providers, and private education—which are relatively insulated from economic fluctuations. Their hiring gains do not reflect rising consumer demand, the primary driver of inflation.

On the other hand, retailers, transportation and warehousing firms, and temporary staffing agencies have reduced their workforce. A decline in temporary jobs can serve as an early indication of reduced labor demand.

Excluding government hiring, private-sector job gains in June totaled 149,000, a sustainable pace that does not necessarily point to an overheating economy. Job growth over the past three months has averaged 196,000 per month, down from 317,000 per month a year ago.

Additionally, the unemployment rate for Black Americans rose for the second consecutive month to 6%, following a record low of 4.7% in April. Some economists interpret this as a sign that Black workers are often the first to be laid off when the economy slows.

The Federal Reserve’s Response

A rate hike at the Fed’s upcoming meeting later this month is widely expected. However, it remains uncertain whether there will be another rate hike in September.

Federal Reserve Chair Jerome Powell aims to achieve a “soft landing” where the economy slows down enough to control inflation without entering a recession. Friday’s jobs report suggests that the Fed may be on track to achieve this elusive goal, according to economists.

While the job market has been supported by a rebound in the number of people seeking work, indicating increased supply, the number of job openings has declined. These trends suggest a gradual balance between supply and demand in the labor market—a key objective for the Federal Reserve. Previously, demand for workers had outpaced supply, leading to accelerated wage growth and inflationary pressures.

Despite various factors at play, consistent hiring is enhancing career prospects for many individuals nationwide.

Juan Bravo’s experience serves as an example. Bravo, 24, found a new job as an HVAC technician in Arlington, Texas, within just three days using the UpSmith job platform. Leaving his position at a food processing plant where many coworkers also quit, Bravo now enjoys similar pay with a much better schedule. He sees significant opportunities for career advancement in his new role, aspiring to reach a general manager position.

Bravo expressed optimism about pursuing the career he had desired since high school, emphasizing the unlimited potential available to him at this point.

Frequently Asked Questions (FAQs) about economic strength

What is the significance of cooler hiring in June for the US economy?

The cooler hiring in June indicates a balanced and sustainable pace of growth for the job market. It provides evidence of economic strength, reducing the unemployment rate and defying predictions of a recession.

How does the Federal Reserve respond to the job market trends?

The Federal Reserve is likely to resume its interest rate hikes after the solid job market performance in June. Their aim is to curb inflationary pressures without derailing the economy. The Fed may pursue a “soft landing” strategy, gradually slowing down the economy to control inflation while avoiding a recession.

Which industries have shown resilience in the face of higher interest rates?

Industries such as housing and car sales have adapted to the higher borrowing costs imposed by the Federal Reserve. Despite increased mortgage rates, housing has rebounded, with higher sales and construction activity. Similarly, auto sales have risen due to pent-up demand, offsetting the impact of higher loan rates.

Are there any signs of the job market cooling down?

Yes, there are indications of a cooling job market. Fewer industries are adding jobs, and some sectors like retailers, transportation, and temporary staffing agencies have reduced their workforce. However, private-sector job gains remain sustainable, and the Federal Reserve perceives the overall trend as conducive to a soft landing.

How are businesses finding workers to hire?

The job market has seen an increase in the number of people seeking work. Factors such as higher inflation and an uncertain economic outlook have motivated more individuals to enter the workforce. Additionally, legal immigration has rebounded, adding to the labor supply. These trends are gradually balancing supply and demand in the job market.

More about economic strength

  • U.S. Bureau of Labor Statistics – Official website providing data and insights on the job market and employment trends in the United States.
  • Federal Reserve – Official website of the Federal Reserve System, offering information on monetary policy, interest rates, and economic indicators.
  • CNBC – News outlet covering business, finance, and economic news, including updates on the job market and Federal Reserve activities.
  • The Wall Street Journal – Renowned financial publication featuring articles and analysis on various economic topics, including hiring trends and central banking policies.

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NewsJunkie July 9, 2023 - 8:14 am

great to see the job market rebounding, especially for Black Americans. but that unemployment rate increase is concerning. need to make sure everyone benefits from the economic growth.

EconomicInsights July 9, 2023 - 12:07 pm

the Fed is playing a risky game with the economy. trying to slow it down without crashing it. hope they know what they’re doing. steady hiring is good, but inflation is lurking.

BusinessOwner007 July 9, 2023 - 2:14 pm

struggling to find workers for my company. open positions everywhere, but no qualified candidates. raised salaries, but still no luck. hope more people start looking for jobs soon.

FinanceWhiz July 9, 2023 - 6:27 pm

interesting how some industries like housing and cars are doing well despite higher rates. who would’ve thought? but other sectors like retail and transportation are cutting jobs. tough balance, I guess.

EconomistGirl July 9, 2023 - 7:46 pm

wow, the US job market seems pretty good in June! not too hot, not too cool, just right. fed might hike interest rates again. soft landing, maybe?

JobSeeker83 July 10, 2023 - 2:25 am

haha, it’s about time! I’ve been looking for a job forever. more people applying now, so maybe my chances are getting better. fingers crossed!


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