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The growth rate of jobs in the US is predicted to have reached its lowest level since 2020, indicating a gradual slowdown in the labor market following nearly 18 months of interest rate hikes.
Economists estimate that approximately 200,000 new non-farm jobs were added in July, based on a Bloomberg survey.
If these predictions are accurate, it would represent a further decline from the 209,000 jobs added in June and the slowest increase since December 2020. This could be seen as a positive sign that the Federal Reserve is making progress in combating inflation.
The labor market is of great interest to the Fed and investors as wage and jobs growth are significant factors contributing to inflation.
However, the overall labor market is still expected to remain strong, with the unemployment rate projected to stay at 3.6 percent.
Although hourly earnings growth is anticipated to have slightly decreased to 4.2 percent on a yearly basis, it still surpasses levels considered consistent with the Fed’s 2 percent inflation target.
The Bureau of Labor Statistics will release official figures on Friday at 8:30 AM Eastern Time.
In recent weeks, optimism has increased that the central bank is effectively reducing inflation without causing a severe recession. In June, consumer price inflation declined more than expected, and the core measure of the personal consumption expenditure index, preferred by the Fed, also dropped to its lowest level since October 2021.
However, the Fed has cautioned that persistent strength in the labor market could present challenges in fully reaching its inflation target.
“I believe the market has been too optimistic with the latest inflation figures,” said Agron Nicaj, US economist at MUFG. “As long as consumer spending remains high and the labor market remains strong, I anticipate inflation to remain elevated.”
Gains in employment have been observed across various sectors in recent months, but Nicaj expresses concern about any signs of weakness in manufacturing.
A survey conducted by the Institute for Supply Management earlier in the week suggested a contraction in activity in this politically significant sector, with Nicaj stating that “many indicators suggest it will be one of the first industries to consistently experience negative employment growth.”
Last week, the Fed raised interest rates to their highest level in 22 years and emphasized the possibility of further hikes if necessary. However, futures markets indicate that most investors anticipate the central bank maintaining steady rates for the remainder of the year.
As of Thursday evening, the markets were pricing in only a 17 percent chance of the Fed raising rates at its upcoming September meeting and approximately a 38 percent chance of at least one rate hike by November.
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