Slow, steady US job growth anticipated in July
2024.08.02 01:17
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.
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 (OTC:). “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.”
