The Jobs Numbers: Not as Expected – August 7, 2023
The latest U.S. employment figures are being parsed from the standpoint of what they might mean for the Federal Reserve’s near-term direction, more so than for what they say about the current state of the economy. That’s especially true because the numbers released by the Bureau of Labor Statistics weren’t quite what people expected.
“Average hourly earnings probably rose 0.3% last month amid ‘softer labor demand and somewhat higher supply,’ representing a step down from June’s 0.4% increase,” Bloomberg economists Stuart Paul and Anna Wong wrote Thursday in a preview of the BLS report.
On Friday, though, the wage increase number was unchanged from June, and so was the year-over-year increase in wages, which remained at 4.4%. So much for the evidence of wage pressures gradually subsiding that economists were looking for.
At Wells Fargo in Charlotte, senior economist Sam Bullard told Reuters on Thursday, “There are signs that labor demand is decelerating, but it’s not like it’s fallen off a cliff. Certainly, if we get another payrolls number in the 200,000 region, that would add to evidence that the Fed can engineer a soft landing.”
Well, that didn’t pan out. Nonfarm payrolls increased by 187,000 jobs in July. And June’s tally was revised lower to show 185,000 jobs added instead of the previously reported 209,000.
Both monthly figures are comfortably ahead of the 100,000-job minimum needed to keep up with increases in the working-age population. However, economists polled by Reuters had forecast a gain of 200,000 jobs last month.
Even so, the unemployment rate dipped to 3.5% from 3.6% in June, approaching the low point last seen in 1969. The Fed’s latest median estimate called for unemployment of 4.1% by the fourth quarter of this year.
It’s now widely expected that the Fed will take a break from further increases in the federal funds rate for September, having announced a 25-basis-point increase to a range of 5.25% to 5.50% in July. However, that doesn’t mean the rate increases are over with.”The hawks at the Fed may become increasingly uncomfortable with the possibility of reemerging inflation if the labor market remains so tight,” Veronica Clark, an economist at Citigroup in New York, told Reuters. “We expect a few somewhat stronger inflation readings into the fall and a labor market that remains stronger than the Fed’s latest forecasts will likely lead to Fed officials raising rates again in November.”