An “We’re Hiring” sign is placed at the Target store on August 5, 2022 in San Rafael, California.
Justin Sullivan | Getty Images
Job growth in August may have slowed from July’s frenetic pace, but it is still expected to be very strong, with broad-based employment in many sectors.
Monthly jobs data is always important, but the August report, released at 8:30 a.m. ET on Friday, is especially important because the state of the labor market will be an important consideration in the Federal Reserve’s next interest rate decision later this month.
The economy is expected to have added 318,000 jobs in August, less than A surprisingly strong 528,000 jobs added in JulyAccording to Dow Jones. The unemployment rate is expected to remain steady at 3.5%, while average hourly earnings are expected to rise 0.4% or 5.3% year over year.
“The view of market participants is that the employment report is more important than the CPI inflation report in determining whether a 75 basis point hike or a larger increase in September is more appropriate than a 50 basis point increase, and I think that is the correct view.” Michael Gaben, chief US economist at Bank of America.
Another important data that central bank officials will take into account when they meet on September 20-21 is the Consumer Price Index for August, which was released on September 13. CPI is expected to be high but less than July pace 8.5 per centdue to lower gasoline prices.
Stocks sold off ahead of this week’s non-farm payroll report amid concerns about inflation and higher interest rates. Strategists say the jobs report can be viewed as a “bad news is good news” type of report. A strong number could lead to more selling and lift bond yields, as investors assume it will make the Fed more aggressive about raising rates.
“A weak number will lead to a rally in bonds,” said Peter Bokvar, chief investment officer at Bleakley Advisory Group. “It will weaken the dollar and that will give us a comfortable recovery in stocks, but I don’t know how long that will last because buying stocks to the teeth of a recession has not been a great strategy. I think it will be a recession for some and maybe not for others.”
Federal Reserve Chairman Jerome Powell sparked market concerns last week when he emphasized that the central bank was committed to fighting higher inflation, and had no plans to back down. Many market professionals expected the Fed to reverse some of its rate increases next year.
Powell used his Jackson Hole speech to frankly warn that the economy and labor market will likely feel “the pain,” as the Federal Reserve uses interest rate hikes to try to control inflation. Investors were debating whether the Fed would use its September meeting to launch a third increase of three-quarters of a point, or reduce it to half a percentage point.
On Wednesday, Loretta Meester, president of the Federal Reserve Bank of Cleveland, a voting member of the Fed’s policymaking committee, He said the central bank would have to move the key lending rate above 4% by early 2023 And keep it there.
Fed Focus
“The labor market situation has been the Fed’s focus,” said Diane Sonk, chief economist at KPMG. “It’s one thing to say that unemployment is unsustainably low, and another thing to say we are going to increase unemployment. They mean the same thing… Pain in the labor market increases unemployment.”
Sonk said there’s a lot of focus on the August jobs report, but it’s the only month that economists expect the government’s monthly payroll data to be misleading.
“August tends to have the lowest salary survey response rate of any month of the year, which makes it subject to some of the biggest revisions,” she said. “This number is likely to be revised a lot. It’s a number you have to take with a grain of salt.”
Sonk said hiring at small businesses may be more affected by the inflation tweak and higher rates than larger employers. She predicts that there may be a degree of labor “hoarding,” as companies keep workers rather than lay them off due to difficulties in finding workers.
She added that leisure and hospitality, for example, may not see the usual decline at the end of the summer because companies were already understaffed in the summer holiday season.
Negative by early next year
Swonk and Gapen both expect the labor market to start releasing negative monthly numbers by early next year, as the Fed’s tightening negatively impacts the labor market.
However, the job market has been surprisingly resilient so far. The Bureau of Labor Statistics reported this week a Stunning 11.2 million jobs in July, 1 million more than expected.
Tom Gimple, founder of recruiting firm LaSalle Networks, said he doesn’t really see a slowdown despite high profile layoffs in the tech sector.
“We’re seeing a huge increase in technology…and it’s continuing to grow. The biggest numbers tend to be in cybersecurity. I’m seeing a 20% year-over-year increase in the number of job openings,” he said. “I see a 15% increase in project management. Companies are still doing projects especially in technology.” He said sales jobs are also up 10% since last year.
“We’ve heard the message again from Jackson Hole, the Fed is serious and we’re going to get inflation under control. The job market is clearly unbalanced,” Gaben said. “The stronger they are across the board, the more tight the Fed will be.”