The slowdown in the US economy, specifically the labor market, from the Labor Dept.'s July Jobs Report, released on Friday, has taken some by surprise, others by concern, and most seeing it as reasonable after several months of a hot, even overheated job market; and, is not entirely unwelcome for those that want to see the Federal Reserve Bank lower interest rates, and while some are urging caution, others like Sen. Elizabeth Warren are urging Chair Jerome Powell to come racing back to Washington, speeding forth in a fire engine red Corvette, to immediately lower interest rates to avoid massive job losses.
Lost in the excitement, or perhaps concern, is that interest rate cuts are done to shore up a sagging economy, not a gift to prospective homeowners, or those interested in opening a business, despite those worthy goals; but, it often seems as if many people have lost sight of that basic move from undergraduate economic studies.
Pushing that aside, for the moment, it’s still clear that July’s numbers are to say the least reasonable, and the worst, concerning; with an unemployment rate of 4.3 a slight downturn from the previous month, and the marquee unemployment rate of 114,000 non farm jobs is still nothing to sneeze at; albeit, a noticeable slowdown, especially with many economists predicting 175,000 would be the number, but, putting emotions aside, those high numbers that we have seen for the last 6 months were simply unsustainable, and while this is a note for the Fed to see what the data continues to show, before Powell, and the Federal Open Markets Committee, makes any moves to cut interest rates.
Let’s look at the heavy hitters from July: Healthcare still leading at 55,000 jobs, Construction at 25,000, Government (both state and local) at 17,000 and Transportation and warehousing at 14,000, the latter is a sure sign that the American consumer are still wielding their smartphones and ordering online, and this despite inflationary prices, or so it seems.
That brings us to wages, which did increase 0.2 percent for the month, and 3.6 percent from a year ago, and while below forecasts from 0.3 percent and 3.7 percent, they may be shoring up consumer buying habits, on line and in stores.
Leisure and hospitality is still coming in healthy at 23,000, possibly attributable to the previous months higher wages, and more than anticipated.
Wages have so far kept pace with inflation, allowing those consumer purchases, the largest driver of the American economy, but July did show a decrease to 0.2, from what was seen as 0.3 percent, and 3.7 percent.
The main concern is that this tumble form last month was, as CNBC reported, “well below the average of 215,000 over the past 12 months.”
“You have to be careful in interpreting this data; it seems clear to me that there is noise in this report,” Omair Sharif, founder of Inflation Insights, tells me. He thinks that the Fed is going to wait and watch the August jobs report, which comes out before its mid-September meeting, before reaching any big conclusions,” reported The New York Times.
Back to the 64,000 question, when will the Feds cut rates? After a Wall Street selling frenzy on Friday, and fears from many quarters that maybe the Fed has waited too long, most of the markets are now safely betting that September is the best bet for an increase and some are saying, it might be more than the traditional quarter point, while others speculate there might be the quarter point, and then others, opting for a second cut in October of another half pont; still others for a quarter point for the remaining three Fed meetings this year.
Warren said in a post on X that “Fed Chair Powell made a serious mistake not cutting interest rates, and “he’s been warned over and over and over again that waiting too long risks driving the economy in a ditch,” sounding more like the law school professor she once was warning an errant pupil, further chastising him “to cancel his summer vacation and cut rates now.”
As we have noted in previous posts, the balancing act that he faces is monumental, cut too much, and inflation rises, not enough, and stasis is eminent.
Inflation has dramatically dropped to 3 percent, but those read hot reports earlier of this year made the Feds wary, and as always Powell is a data driven chief, no more, no less.
“Greater confidence” is what the FOMC needs and right now they don’t have it that the US economy can sustain its traditional target to to hit the standard 2 percent inflation. But the chair has noted, “we’re getting close to the point at when it will be appropriate.” And, that point is widely understood to be at the September meeting.
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