In the United States, in August, the local labor market demonstrated what can be described as the dynamic of recovery.
Last month, employers added about 142,000 jobs in the US. The relevant information was published on Friday, September 6, by the Bureau of Labor Statistics. In this case, there is a significant improvement in the situation in the employment area. In July, the US labor market showed alarmingly low indicators. In the mentioned month, employers added 89,000 jobs, according to a revised estimate.
In August, the unemployment rate in the United States was recorded at 4.2%. In July, the corresponding figure was 4.3%.
The consensus forecast of FactSet provided that 160,000 jobs will be added in the United States in August. The final result, according to official data released on Friday, turned out to be lower. Also, the mentioned consensus forecast provided that the unemployment rate in the United States in August would be fixed at 4.2%. In this case, expectations and reality coincided, which is an example of a correct predictive vision.
August’s total lands corresponds to the increase in jobs seen over the past three months. At the same time, it is worth noting that the average figure for the last 12 months is around 202,000 jobs.
Over the past year, the United States labor market has been experiencing what can be called the dynamic of sequential cooling. The corresponding trajectory of the situation in this space is largely natural. The mentioned statement is based on the fact that currently in the United States, the supply and demand of workers are recovering in a better balance after a kind of fundamental shock and, in a symbolic sense, a structural earthquake associated with force majeure terms and the consequences of the coronavirus pandemic as a source of stress for the state of affairs in the economy.
At the same time, opinions have been circulating recently that in the short or medium term, the US labor market may find itself in a situation significantly worse than the current condition. The corresponding concerns are related to the fact that the process of increasing jobs may not just continue along the trajectory of deceleration, but at some point reach a kind of point of significant decline. The realization of this potential scenario will be what can be described as a deep crisis for the United States labor market.
At the same time, the situation in the employment area is still showing improvement, although in this case there is no sharp increase, and the upward trajectory has a moderate scale. The shocking July data provoked apprehensions that the United States labor market is on the way to some kind of collapse. Also, against the background of the corresponding sentiments, fears were formed and began to spread regarding the risk that the dynamic of the US economic system could slow down significantly.
It is worth noting that the August improvement in the situation in the employment area should still not be perceived and interpreted as a guarantee that in the future the state of affairs in the relevant space will only be positive. Data like last month may be a signal of the beginning of a long-term stable period of high indicators, but at the same time, one should not exclude the possibility that in this case there is a temporary upward movement, which shortly will actually be canceled by a more gloomy the condition of reality. So far, it is impossible to unequivocally answer the question of what situation will be observed in the US labor market after the August growth. There is also currently no specific understanding of the prospects for the economic system of the United States.
Becky Frankiewicz, president of ManpowerGroup North America, says that the jobs report, published on Friday, signals the continuation of the so-called Great Waiting Game, observed during the summer. The expert also noted that currently employers and employees are waiting for evidence of an improvement in the situation, and not speculation with forecasts.
In August, average hourly earnings increased by 0.4% on the month and 3.8% from a year ago. Hours worked increased to 34.3.
The report published on Friday also contains a statement that there is currently tension in the markets related to expectations regarding further actions by the Federal Reserve System in the context of changes in monetary policy. It is worth noting that recently, optimistic sentiments have significantly increased regarding the fact that following the results of the September meeting of the central bank of the United States, which is scheduled for September 17-18, a decision will be made to start cutting interest rates. In March 2022, the US financial regulator launched a strategy to aggressively increase the cost of borrowing. The relevant actions of the Fed were aimed at countering the inflationary process, which was on an upward trajectory. In the first half of March 2022, the federal funds rate was observed in the range of 0.25% to 0.50%. The last time the central bank raised the cost of borrowing was in July 2023. After the implementation of this decision, the federal funds rate is in the range of 5.25% to 5.50%. Since then, the monetary policy strategy of the central bank of the United States has not changed.
It is worth noting that currently, some experts say that the Fed may decide too late to cut interest rates, which will become a factor of negative impact on the state of affairs in the space of the US economic system. At the same time, officials of the central bank of the United States adhere to a kind of corporate consensus opinion, according to which, before lowering the cost of borrowing, it is necessary to obtain the maximum possible amount of data that inflation is on a steady trajectory of movement towards the financial regulator’s target of 2%. In this case, the labor market situation is also taken into account as one of the most important decision-making factors.
It is worth noting that monetary policy easing has already begun in some regions of the world. The relevant decisions were taken by the Swiss National Bank and the European Central Bank. At the same time, in this context, an important circumstance is that in the era of globalization, which provides for deep interconnection and in some cases interdependence of economic systems of different countries, the actions of one financial regulator are subject to adjustment taking into account the decisions and moves of similar institutions in other states. In the current paradigm of the specifics of global economic reality, the Fed is a particularly important player. Changes in the monetary policy of this financial regulator will have wide-ranging practical consequences extending beyond the United States in particular and North America in general. This circumstance is because currently, the US economic system is the largest in the world. The gross domestic product (GDP) of the United States in 2023 amounted to $27.35 trillion, according to the online platform Statista.
It is noteworthy that at present, even among officials of the US central bank, who for a long period have been supporters of the most rigid monetary policy concept, some began to back the beginning of cutting interest rates. For example, this week Atlanta Federal Reserve President Raphael Bostic announced his readiness to lower the cost of borrowing and in the appropriate context noted that inflation, which is still above the target of the financial regulator, in this case, should not be a hindrance. In July, inflation in the United States was fixed at 2.5%. The specified statement was published on the official website of the mentioned financial institution.
The CME Group’s FedWatch gauge indicates that after the payroll data was released, prices on the futures markets showed a decrease of half a percentage point.
Seema Shah, chief global strategist at Principal Asset Management, says that in the context of deciding on monetary policy easing, the Fed will have to decide which of the two likely risks is greater. In this case, it is implied that cutting interest rates by 50 basis points could potentially provoke a resumption of inflationary pressure, and lowering the cost of borrowing by 25 basis points could cause the threat of recession in the space of the United States economic system.
Currently, there is minimal doubt in the markets that the US financial regulator will decide in September to ease monetary policy. At the same time, there is no single point of view regarding the scope of the relevant decision.
Seema Shah says that against the background of the already observed decrease in inflationary pressure, the Fed has no reason not to be careful and not cut interest rates frontload.
The central bank of the United States is signaling its actual readiness to start lowering the cost of borrowing. Fed Chairman Jerome Powell said last month during a speech in Jackson Hole, Wyoming, that it was time to make adjustments to the monetary policy strategy. This statement is an unambiguous signal of the Fed’s willingness to cut interest rates.
Federal Reserve Bank of New York President John Williams on Friday also stated support for the decision to ease monetary policy. According to him, the economic system of the United States is currently in equilibrium, and inflation is approaching the 2% mark. He says that against the background of the mentioned state of affairs, it is appropriate to dial down the degree of restraint in the stance of policy by reducing the target range for the federal funds rate. John Williams said this in remarks before the Council on Foreign Relations in New York.
Returning to the issue of the state of affairs in the United States labor market, it is worth noting that data from ADP, a company specializing in processing payrolls, indicates that in August, just 99,000 jobs were added by US private firms. Outplacement company Challenger, Gray & Christmas reported an increase in the number of layoffs in the mentioned country last month. The firm also noted that the rate of hiring in the United States is the lowest since 2005.
It is worth noting that US equities are unexpectedly shrugging off weak payroll data for August. Futures compensated for the above-mentioned losses that were recorded immediately after the publication of the specified information. The corresponding reaction may be the result of the fact that traders probably reacted positively to the fact that the number of jobs nonetheless increased in August, demonstrating a recovery after the fall recorded in July.
It is worth noting that the data released on Friday indicate a softening labor market. At the same time, the shares have not yet shown a significant reaction to the relevant information within their dynamic. This state of affairs may be a sign of a very high level of concentration of the stock market on potential changes in monetary policy. Probably, the expectation of cutting interest rates is the main object of interest, against which all other factors and circumstances are of less importance. At the same time, it is worth noting that the Fed, as part of its decision to change its monetary policy strategy, will take into account the situation in the employment area.
