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The American job market likely cooled last month while still remaining fundamentally healthy, which would be welcome news for the Federal Reserve in its drive to fully tame inflation.
When the Labor Department issues the latest jobs report Friday, it’s expected to show that employers added 190,000 jobs in June — a solid gain, though down from a surprisingly robust 272,000 increase in May. The unemployment rate likely remained at a low 4%, according to forecasters surveyed by the data firm FactSet.
From the Fed’s perspective, a deceleration in hiring to a still-decent pace would be just about ideal. It would suggest that the job market is slowing enough to ease pressure on employers to sharply raise pay, which could feed inflation, yet not so much as to cause waves of layoffs.
That said, economists been repeatedly predicting that the job market would lose momentum in the face of high interest rates engineered by the Fed, only to see the hiring gains show unexpected strength. The economy has added a healthy average of 248,000 jobs a month so far in 2024. That’s close to the 2023 average of 251,000, though down from the sizzling gains of 2022 (an average of 377,000 added jobs each month) and 2021 (a record 604,000) as the economy roared back from COVID-19 recession.
“The labor market has really proven the doubters wrong,’’ said Andrew Flowers, chief economist at Appcast, which uses technology to help companies recruit workers.
Still, Flowers suggested, the much higher borrowing costs caused by the Fed's rate hikes will eventually weaken the job market.
“Eventually," he said, "it’s going to bend, but not break. The slow bite of high interest rates is going to moderate job growth.’’
Already, there are signs of an economic slowdown. The U.S. gross domestic product — the total output of goods and services — grew at a lethargic annual pace of 1.4% from January through March, the slowest quarterly pace in nearly two years.
Consumer spending, which accounts for about 70% of all U.S. economic activity and which has powered the expansion the past three years, rose at just a 1.5% pace last quarter after growing more than 3% in each of the previous two quarters. In addition, the number of advertised job openings has declined steadily since peaking at a record 12.2 million in March 2022.
Still, while employers might not be hiring so aggressively after having struggled to fill jobs the past two years, they aren’t cutting many, either. Most workers are enjoying an unusual level of job security.
“Businesses are hiring less amid cooler demand conditions," said Bill Adams, chief economist at Comerica Bank. "But they are also laying off fewer workers than before the pandemic. The job market is tight, so businesses don’t want to cut headcount today only to realize they need more workers tomorrow and then struggle to find them.’’
During 2022 and 2023, the Fed raised its benchmark interest rate 11 times to try to conquer the worst streak of inflation in four decades, lifting its key rate to its highest point in 23 years. The punishingly higher borrowing rates that resulted, for consumers and businesses, were widely expected to trigger a recession. They didn't. The economy and the job market instead have shown surprising resilience.
Meanwhile, inflation has steadily declined from a 9.1% peak in 2022 to 3.3%. In remarks this week at a conference in Portugal, Fed Chair Jerome Powell noted that price increases in the United States were slowing again after higher readings earlier this year. But, he cautioned, further evidence that inflation is moving toward the Fed's 2% target level would be needed before the policymakers would cut rates.
Fed officials are sure to be watching Friday’s jobs report for signs that wage pressures are easing. According to FactSet, forecasters believe that average hourly earnings rose 3.9% last month from a year earlier. That would be the smallest such gain since June 2021. But it would still exceed the 3.5% average annual wage growth that many economists consider consistent with 2% inflation.
The jobs report comes as Americans are weighing the health of the economy in advance of the November presidential election. Many blame President Joe Biden for high prices that continue to squeeze their household budgets.
Some Americans are also feeling the effects of a weakening labor market. One of them, Caleb Hennington, of Little Rock, Arkansas, was laid off from his marketing job in March.
“Since then, it’s been a real struggle to find a new opportunity," said Hennington, 32, who said he has applied for more than 250 positions.
“Most places completely ghost me after saying they’ll get back to me quickly with a follow-up,’’ he said. “It’s been exhausting mentally, and even though I have 10 years in the marketing field, I’m struggling to find a new role. I’ve had to resort to picking up freelance gigs and part-time jobs just to have some income coming in.’’
