The growth of employment in the last three months has reached one of the weakest moments, outside the pandemic, since the United States economy limited to recover from the financial crisis and the recession from 2007 to 2009.
However, the unemployment rate is the same as a year ago, 4.2%, around estimates of full employment of the Federal Reserve. A salary growth of approximately 4% per year is sufficient to keep workers ahead of inflation, but not so much to generate concerns about inflation.
Fed officials who weigh a possible rate cut at their September meeting will have to decide which set of contradictory facts sends the strongest signal about the future of the United States labor market, with a potentially crucial report on Friday that shows if the weak growth of employment continued for the fourth month in August or recovered in a sign that the labor market remains healthy.
If the last months offer a clue, the answer can remain in the view of the spectator among the political leaders divided by those who feel that the labor market could be on the verge of rupture, and those who see the current situation as more difficult to read given the continuous growth of wages and a fall in the offer of workers that can make a slower monthly growth of employment is the new normality.
Employment earnings have averaged only 35,000 in the last three months, a figure that may have alarm about the increase in unemployment in previous years, but is closer to a level of “balance” that is estimated that it has fallen well below 100,000 due to deportations and stricter immigration.
The current level of equilibrium of employment creation “is really difficult to determine,” said New York Fed President John Williams, in CNBC last week, added that he had begun to look for indicators such as salary growth in search of general health signs of the labor market and felt that it was still “consistent with a solid labor market and an inflation that approaches our goal of 2%”.
“We are seeing a labor market that greatly reflects a slowdown in the hiring rhythm and a kind of reluctance to say goodbye. But the question is, is that a stable balance, or is it basically a truck stop on the way to something else?”, Said Nela Richardson, chief economist of the PLUP PROCESSOR ADP, “That truck stop on the road But if there are cracks in consumer spending, I think you are going to see a slowdown in the impulse … we are at a turning point. ”
The Fed meets on September 16 and 17, and the markets put a high probability in a rate cut of a quarter percentage point, an expectation in a context of pressure from the White House so that President Donald Trump lowers the interest rates. Although those responsible for the monetary policy of the Fed say that any decision given at a given meeting generally does not matter much in an economy of 30 billion dollars, September has acquired a symbolic importance as a referendum on whether the Fed is ready to look beyond concerns about the Trump administration policies that drive inflation and begin to lower interest rates towards a more neutral level, a destination that had a destination that had a destination in mind until December.
The reference rate has been maintained in a range of 4.25% to 4.5% since then, and the head of the FED monetary policy estimates that the neutral rate is around 3%.
Recent data have not led political leaders to completely set aside concerns about inflation.
The “transfer” of the increase in tariffs at consumer prices has been more modest than expected initially. But there have been few recent advances towards the inflation target of 2% of the Fed; Some service industries are showing a price increase at a time when political leaders expected inflation to be limited to goods. The continuous increase in stock markets and the sustained expense of consumers have led some officials to argue that monetary policy is not leaning so much against the economy.
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Fed in a possible turning point in employment as stories diverge
Although Powell opened the door to lower indebted costs in recent comments at the Jackson Hole conference of the Fed, pointing out a “base case” that tariffs would cause only a unique impulse to inflation, also promised that “whatever happens, we will not allow a unique increase in price level to become a problem of continuous inflation.”
The FED will receive a final round of inflation data on September 11, which will cover the month of August, in time for officials to incorporate them into the updated quarterly projections on the economy issued at the end of the September meeting.
Even so, Powell said that the increase in risks around the labor market “can justify the adjustment of our political position.”
Despite the expectations that accumulate around a rate cut, the debate is likely to be intense unless the final reports of inflation and employment offer a consistent image.
The officials are reviewing beyond the main data such as the unemployment rate to consider, for example, if the fact that the average hours worked has not decreased increases the impression of a healthy labor market, since companies generally reduce hours before cutting workers.
The hiring rate has decreased, a possible precursor to increase unemployment. But if the labor supply is also falling, that is to be expected, producing what Powell called a “curious type of balance” in the labor market. Other measures, such as an index of the frequency with which workers move between works produced by the Bank of the Federal Reserve of Philadelphia, are more or less similar to what they were before the pandemic; The job offers, on the other hand, that shot during the pandemic, have been constantly going down, according to Chmura Analytics Jobseq.
With data that support different narratives, policy formulators must reflect on the risks against those who want to ensure.
In an interview with Reuters, the president of the Fed of St. Louis, Alberto Musalem, for example, said that inflation remained the center of attention, with prices up faster than Fed wants and the risks of the labor market increased, but not yet realized.
Others have pointed out that it would probably be easier for Fed to act against persistent inflation signals than to reconstruct the labor market if it fails.
In comments last week, the governor of the Fed, Chris Waller, who wanted to cut the rates in July and disagreed the decision not to do so, said the delay was becoming more risky.
“Labor demand may be on the edge of a strong decrease,” Waller said, referring to the internal estimates of the staff on recent labor dynamics. The Fed “should not wait until the labor market deteriorates before cutting the policy rate.”
With Reuters information.
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