In recent months, the great debate has been over whether the 2021 hypergrowth will end with a soft landing — a gradual slowdown — or a hard landing that will turn into a nasty recession.
Why it’s important: policymakers are looking for more moderate job creation as the economy cools, reducing inflationary pressures. In contrast, the labor market remains robust.
- This now alleviates fears of recession, but also increases the risk that the Fed will maintain an aggressive approach to raising interest rates.
Boost for the news: Employers added 372,000 jobs last month, about 100,000 more than Wall Street economists expected. The unemployment rate remained unchanged at 3.6%.
Between the lines: This is an unusual time, when even politicians are looking for a job slowdown.
- President Biden, for example, said in an opinion piece on May 30 that if employment growth shifted to about 150,000 a month, it would be “a sign that we are successfully entering the next phase of recovery “.
- It’s not happening, though. Over the last three months, employment growth has averaged 375,000 a month.
- With employers still creating jobs at a faster pace than demographics would allow, it implies that the overly hot economy is not cooling down enough to curb inflation.
It’s a good reminder that despite all the focus on a good handful of freezes and hiring layoffs in some popular companies, most American companies continue to hire aggressively to meet high demand.
- This is also shown in indicators such as weekly unemployment claims, which have recently increased but remain close to historically low levels.
For the Fed, strong employment growth makes another rate hike of 0.75 percentage points later this month seem almost a certainty (officials have indicated that a half-point increase is also an option ).
- Today’s early bond markets have hardened rapidly as the two-year Treasury yield rose to 3.12%.
What they are saying: “The number of jobs today should allay fears of an impending recession, but it does nothing to alleviate fears of a considerable tightening of the Fed,” said strategist Seema Shah Global Head of Principal Global Investors.
Yes, but the report also contained some news that helps allay fears of an upward inflationary spiral. It showed that average hourly earnings rose 0.3% last month, 5.1% more than last year.
- These figures are at the same level as last month and reflect a slowdown from the beginning of the year, suggesting that there is no upward spiral in wages underway.
There are also conflicting signs in the report. According to a household survey, used to derive the unemployment rate, there were 315,000 fewer Americans working. The proportion of working-age adults (people aged 25 to 54) fell to 79.8%.
How it works: The establishment survey, an employer survey that generates payroll and earnings data, is generally considered more reliable for month-on-month earnings, although it is subject to major revisions as it becomes available. of more complete data.
Household survey, however, has a larger margin of error than its counterpart, so in a given month it is more likely to give a misleading signal.
- The Bureau of Labor Statistics says that in the employer survey, a movement of 120,000 jobs is statistically significant, while in the household survey that number is 500,000.
The big picture: Another worrying sign showed that the workforce fell by 353,000 workers, certainly not something that Fed officials want to see. They expect the labor market to attract more workers to remove the pressure of scarcity, which could help cool inflation.
Conclusion: The economy is probably not in recession. But the longer employment growth is maintained, the more painful the final fall is likely to be.