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Despite the anticipated slowdown in job growth last month, the
Labor Department's closely watched employment report on Friday
could ease fears of a recession that have mounted in recent days
following a raft of tepid economic data, ranging from consumer
spending to manufacturing.
While demand for labor is cooling in the interest rate-sensitive
goods-producing sector of the economy, businesses in the vast
services industry are scrambling for workers. There were 11.3
million job openings at the end of May, with 1.9 jobs for every
unemployed person.
"It's very, very difficult to get a recession with so many job
openings," said Jonathan Golub, chief U.S. equity strategist at
Credit Suisse in New York. "In reality, a recession, more than
anything else, is a collapse in the labor market, a spike in the
unemployment rate, and right now, we're not seeing anything that
looks like that at all."
Nonfarm payrolls likely increased by 268,000 jobs last month
after rising by 390,000 in May, according to a Reuters survey of
economists. That would be the smallest gain since April 2021 and
just more than half of the monthly average of 488,000 jobs this
year. Estimates ranged from as low as 90,000 to as high 400,000.
Still, the pace would be well above the average that prevailed
before the COVID-19 crisis and would leave employment about
554,000 jobs below the pre-pandemic level.
Most industries with the exception of leisure and hospitality,
manufacturing, healthcare, wholesale trade and local government
education have recouped all the jobs lost during the pandemic.
The unemployment rate is forecast to be unchanged at 3.6% for a
fourth straight month.
The Fed wants to cool demand for labor to help bring inflation
down to its 2% target.
The U.S. central bank's aggressive monetary policy posture has
heightened recession worries which were amplified by modest
growth in consumer spending in May as well as soft housing
starts, building permits and manufacturing production.
In June, it raised its benchmark overnight interest rate by
three-quarters of a percentage point, its biggest hike since
1994. Markets overwhelmingly expect the Fed, which has increased
its policy rate by 150 basis points since March, to unveil
another 75-basis-point hike at its meeting later this month.
The release next Wednesday of inflation data for June, which is
expected to show consumer prices accelerating, is also seen
giving policymakers ammunition to raise borrowing costs further.
TIGHT LABOR MARKET
"We still have a very tight labor market, which argues for the
Fed to move policy to restrictive territory," said James
Knightley, chief international economist at ING in New York.
"Coupled with elevated and still rising inflation, this gives
the Fed the excuse to push ahead and indeed tighten by 75 basis
points."
The June payrolls could surprise on the downside because of
issues with the seasonal factors, the model that the government
uses to strip out seasonal fluctuation from the data, following
the upheaval caused by the pandemic.
Unadjusted payrolls increased by the most on record in June 2020
as the economy emerged from the first wave of COVID-19, a feat
that is unlikely to be repeated.
"But the June 2021 seasonal factor was more 'aggressive' than
normal in terms of anticipating job growth, and we think the
June 2022 seasonal factor may also end up being 'stronger than
normal,' which could bias the seasonally adjusted data lower,"
said Daniel Silver, an economist at JPMorgan in New York.
Job growth last month was likely led by the leisure and
hospitality sector. That, together with gains elsewhere, would
help the private sector to recoup all the jobs lost during the
pandemic, even as leisure and hospitality employment remains in
a hole. Construction payrolls likely declined as surging
mortgage rates curbed homebuilding.
Financial sector employment is also expected to have decreased,
reflecting a softening in real estate hiring amid slowing home
sales.
Manufacturing payrolls are seen increasing despite a move by
technology giant and electric vehicle manufacturer Tesla to lay
off hundreds of its American workers.
With the labor market still tight, employers likely continued to
raise wages at a steady clip last month.
Average hourly earnings are forecast to have increased 0.3% for
a third straight month. That would lower the year-on-year
increase to 5.0% from 5.2% in May.
While annual wage growth has decelerated from 5.7% in January,
wage pressures remain robust. Labor costs surged in the first
quarter and the Atlanta Fed's wage growth tracker continues to
run strong.
The average workweek in June is seen holding at 34.6 hours for a
fourth straight month.
"If businesses start cutting hours, that would be a bad omen,"
said Ryan Sweet, a senior economist at Moody's Analytics in West
Chester, Pennsylvania.
(Reporting by Lucia Mutikani; Editing by Paul Simao)
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