US Jobs Report Indicates Strong Growth, Poses Challenges for Fed’s Inflation Control Efforts

The upcoming release of the US jobs report is expected to reveal yet another month of robust hiring, suggesting that a recession is not imminent. However, this positive trend could complicate the Federal Reserve’s mission to cool down the economy and rein in high inflation.

According to economists surveyed by data provider FactSet, employers are predicted to have added 205,000 jobs in June. While this figure is slightly lower than recent monthly gains, it still represents a healthy increase and indicates a historically high number of advertised job openings.

Continued strong hiring underscores the economy’s surprising resilience, particularly in light of the Federal Reserve’s aggressive increase of its key interest rate by 5 percentage points, the fastest pace in four decades. These rate hikes have resulted in higher costs for mortgages, auto loans, and other forms of borrowing. However, consumers have continued to spend, albeit modestly, providing an incentive for some companies to maintain their hiring and expansion efforts.

In other news, an Amsterdam court has approved a plan to reduce flights at the busy Schiphol Airport, countries have agreed to cut shipping emissions but not enough to stay within warming limits, President Biden has launched a new initiative to limit healthcare costs, and Treasury Secretary Yellen has appealed to China to revive talks and avoid technology-related tensions that could disrupt diplomatic ties.

Economists anticipate that the unemployment rate declined from 3.7% to 3.6% last month, approaching the lowest level in five decades.

Even a modest job gain in June would solidify the likelihood of the Federal Reserve resuming its rate hikes at its next meeting later this month. After increasing its benchmark rate 10 consecutive times, the central bank paused last month to assess the impact of significantly higher borrowing costs on the economy, as stated by Chair Jerome Powell.

During their June meeting, Fed policymakers indicated that they anticipated up to two additional quarter-point rate hikes by the end of the year. Previously, experts had expected only one more rate increase in 2023. The revised projections reflect the belief among many Fed officials that more actions are necessary to combat inflation. While inflation has decreased significantly from its peak, it still stands at 4%, well above the Fed’s target of 2%.

On Thursday, Lorie Logan, president of the Federal Reserve Bank of Dallas, expressed concern about persistently high inflation and a stronger-than-expected labor market, suggesting that borrowing costs may need to rise further to address these issues.

Other Fed officials are monitoring the job market for signs of better balance, particularly in terms of supply and demand for workers. Following the pandemic, the number of available jobs surged past 10 million, a record high. This increased demand for labor coincided with millions of Americans leaving the workforce due to retirement, COVID concerns, caregiving, or career changes.

With companies struggling to fill numerous job openings, many have resorted to offering higher wages and improved benefits to attract and retain employees. However, Fed officials remain concerned that rising wages will lead to persistent inflation as companies pass on the increased labor costs to consumers through price hikes.

Some progress has been made in aligning supply and demand in the job market. Over the past seven months, approximately 2 million people have actively started looking for work, and most of them have found employment. As the labor supply has improved, businesses have observed a rise in job applicants. Additionally, the number of job openings declined in May, indicating a gradual cooling of worker demand, although it remains higher than pre-pandemic levels.

Another sign of a potential slowdown in the job market is the decrease in the number of Americans quitting their jobs to seek new positions. The surge in job resignations following the pandemic was driven by individuals searching for more fulfilling or higher-paying jobs, which prompted companies to raise wages to retain their workforce. In May, around 4 million Americans left their jobs, up from the previous month but below the peak of 4.5 million reached last year.

Luke Pardue, an economist at Gusto, a payroll software provider for small- and medium-sized businesses, suggests that as economic uncertainty grows, workers are becoming less eager to switch jobs. This shift in job-switching enthusiasm could indicate a potential slowdown in the labor market.

Nevertheless, recent reports indicate that the economy continues to expand, with a strong demand for workers. A survey conducted among service providers, including banks, restaurants, and shipping companies, revealed healthy growth in the sector in June, accompanied by an acceleration in hiring compared to May.

Furthermore, the payroll provider ADP reported a significant surge in hiring by private employers in June, with 497,000 jobs added. However, it’s worth noting that ADP’s figures often differ from the government’s official data.

Despite numerous predictions of a slowdown in the job market, economists and analysts have consistently been proven wrong over the past six months. The job market has demonstrated unexpected resilience, even amidst calls for an imminent recession.

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More about jobs report

• US Bureau of Labor Statistics – Official website providing comprehensive labor market data and information.
• Federal Reserve – Official website of the Federal Reserve System, offering insights into monetary policy, interest rates, and economic analysis.
• FactSet – Data provider offering financial information, including economic forecasts and market research.
• CNN Business – Business news website providing coverage on economic trends, jobs reports, and Federal Reserve updates.