Slow, steady US job growth anticipated in July
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[August 02, 2024] By
Lucia Mutikani
WASHINGTON (Reuters) - U.S. employment likely increased at a slow, but
still healthy pace in July, which could help to allay fears of a rapid
labor market deterioration that had been stoked by a rise in the
unemployment rate to a 2-1/2-year high of 4.1% in June.
Some of the anticipated moderation in job growth last month was probably
because of disruptions caused by Hurricane Beryl. The Labor Department's
closely watched employment report on Friday could seal the case for a
September interest rate cut from the Federal Reserve, with the increase
in annual wages last month estimated to have been the smallest in more
than three years.
It would add to a recent raft of data on prices, productivity and labor
costs in confirming that inflation was firmly on a downward trend. The
labor market is being closely watched by both policymakers and
economists for signs of a disorderly slowdown, which could imperil the
economic expansion.
"The labor market is in a good place, but there have been clear signs
that momentum has also been slowing," said Ernie Tedeschi, director of
economics at The Budget Lab at Yale. "It is slowing in a manner that is
consistent with a labor market that is reaching a ceiling, not
deteriorating."
Nonfarm payrolls likely increased by 175,000 jobs last month after
rising 206,000 in June, according to a Reuters survey of economists.
Employment gains averaged 222,000 per month in the first half of this
year. Economists say at least 200,000 jobs per month are needed to keep
up with growth in the working-age population, taking into account a
recent surge in immigration.
With immigration slowing, they expect the economy would only need to
create roughly 150,000 jobs per month, going forward.
The slowdown in the labor market is being driven by low hiring, rather
than layoffs, as the U.S. central bank's rate hikes in 2022 and 2023
dampen demand. Government data this week showed hires dropped to a
four-year low in June.
Fed Chair Jerome Powell told reporters on Wednesday that while he viewed
the changes in the labor market as "broadly consistent with a
normalization process," policymakers were "closely monitoring to see
whether it starts to show signs that it's more than that."
The Fed kept its benchmark overnight interest rate in the 5.25%-5.50%
range, where it has been since last July. The central bank, however,
opened the door to reducing borrowing costs as soon as its next meeting
in September. Financial markets are also expecting cuts in November and
December.
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A pedestrian passes a "Now Hiring" sign at a Chase Bank branch in
Somerville, Massachusetts, U.S., September 1, 2022. REUTERS/Brian
Snyder/File Photo
WEATHER EFFECT
Economists estimated that Hurricane Beryl, which knocked out power
in Texas and slammed parts of Louisiana during the payrolls survey
week, could have depressed employment by as much as 30,000 jobs.
Much of the drag is likely to be in construction, leisure and
hospitality, transportation, and to some extent the retail sector.
Some of the hit could be offset by delays by some automobile
manufacturers idling plants for new models retooling.
"The slowing we expect in July would likely underestimate the true
underlying pace of job creation," said Yelena Shulyatyeva, a senior
economist at BNP Paribas. "The hurricane distortions are expected to
reverse in August."
Beryl also likely boosted average hourly earnings as most of the
workers kept at home were employed in low-wage industries. It could
also have reduced hours worked.
Average hourly earnings were forecast rising 0.3%, matching June's
gain. In the 12 months through July, wages were estimated to have
increased 3.7%. That would be the smallest year-on-year gain since
May 2021 and follow a 3.9% rise in June.
Though wage growth would remain above the 3%-3.5% range seen as
consistent with the Fed's 2% inflation target, it would extend the
run of inflation-friendly data.
The unemployment rate was forecast unchanged at 4.1% having
increased for three straight months. It has risen from a five-decade
low of 3.4% in April 2023, an increase that lead to murmurs of a
recession. Economists dismissed these fears as misplaced noting that
layoffs remained historically low.
"This is important because it means the economy is not experiencing
the usual vicious circle in which job and income loss lead laid-off
workers to reduce their spending, leading to further job loss,"
economists at Goldman Sachs wrote in a note.
"The increase in the unemployment rate has instead come partly from
a surge in labor supply driven by immigration, with which job growth
has not quite kept up."
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)
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