With plans to begin decreasing interest rates later this month, Federal Reserve Chair Jerome Powell may still be able to salvage the worsening U.S. labor market.
Government data released on Friday showed a slowdown in hiring, with August’s employment gain of 142,000 being lower than predicted by economists. In addition, the gains from the two months prior were significantly lowered downward. August saw a return to a more manageable 4.2% unemployment rate and faster pay growth following previous month’s worrisome spike.
Is the Fed snatching defeat from the jaws of victory the major question? Waited too long for the Fed to lower interest rates? labor economist Aaron Sojourner of the Upjohn Institute for Employment Research made the statement. “That is still unknown to everyone.”
Inflation control without stifling growth is a finely balanced issue that voters are becoming increasingly concerned about in the weeks leading up to a presidential election, where both candidates are running close in the polls.
Powell and his colleagues officials have stated their readiness to relax off the economy, since inflation—one of the main concerns of voters—has fallen back to the central bank’s 2 percent objective and unemployment has increased slowly but noticeably over the past year.
Added jobs and a declining unemployment rate were highlighted by President Joe Biden as signs that the economy is still robust.
“Now that inflation is returning to normal levels, our attention must be directed towards maintaining the remarkable progress we have achieved for American workers,” he stated.
The Federal Reserve must immediately determine the appropriate rate of interest rate reduction. The majority of the effects, however, will not be felt until after the election, when the next president enters office, and Powell’s actions will have set the stage for the economy.
It is widely anticipated that the Federal Reserve would drop rates for the first time in over four years during their meeting on September 17th and 18th.
“Although the job market has obviously cooled, I do not believe the economy is in a recession or necessarily headed for one soon,” stated Fed Governor Chris Waller in a speech he gave on Friday. According to Chair Powell, “the time has come to begin reducing [rates]” in order to keep the economy moving forward.
The employment market has been showing signs of softening due to a lack of options, which is unfortunate for recent college grads or those seeking a job move but generally not too shocking. If the situation worsens, policymakers fear that layoffs will be the only option.
At this time, Fed officials do not perceive any cause for alarm. The Beige Book, a compilation of information gathered by central bank officials from across the nation, states that “Reports of layoffs remained rare” this week.
Jobless claims also haven’t spiked in the past week. Additionally, the unemployment rate decreased mainly due to the fact that it increased in July due to temporary layoffs, which meant that employers intended to rehire the individuals.
But the job market is still doing poorly.
The three-month average of newly added employment is 116,000 following the lower revisions to the prior two months, according to a letter to clients written by Omair Sharif, president of Inflation Insights. Statistical significance is achieved only when there is a gain of 130,000 or more jobs, since there are over 5 million job losses and gains per month.
“To rephrase, we are unsure as to whether payrolls were greater than zero for two out of the past three months,” Sharif stated.
Homebase CEO John Waldmann said Friday that his company’s analytics indicated “flashing yellow lights,” even if Friday’s study doesn’t indicate a recession is near.
Broad losses in personnel working across pretty much all businesses is what we have witnessed,” he added. Comparing August to July, the decline in headcount was 3.5%, “which is normal seasonally, but the drop was sharper than the last few years.”
Customers who are tiny businesses “react very quickly to changes in the market,” he said. “And the main thing we’re noticing is that they’re actually cutting back on hiring.”