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The economy survived the government shutdown but all is not well
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Tag: unemployment figures
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A Strong Jobs Report Makes Big Rate Cuts Unlikely in 2024
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Updated Dec 09, 2023, 12:13 pm EST / Original Dec 08, 2023, 6:30 pm EST
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The Sahm rule: What to know about the recession indicator that has Wall Street talking
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That was close.
After the U.S. unemployment rate climbed to 3.9% in October, stoking fears that the labor market might finally be starting to crack under the weight of the Federal Reserve’s interest-rate hikes, economic data released Friday showed that unemployment retreated to 3.7% in November.
That means the Sahm rule, an indicator devised to sniff out a recession long before one is officially declared, is now even further from triggering, after nearly brushing up against the threshold last month.
And according to the rule’s creator, former Federal Reserve economist Claudia Sahm, perhaps it won’t trigger, at least not during this cycle.
“I am more optimistic today that it doesn’t trigger,” Sahm told MarketWatch during a phone interview Friday.
What’s the Sahm rule, and why should we care about it?
Wall Street and social media were abuzz with talk of the Sahm rule last month as the rising unemployment rate sparked a debate about whether a recession had begun.
The increase brought the Sahm rule indicator to 0.30, according to data available on a Federal Reserve branch website, bringing it closer to triggering than at any time during the past two years. It also sparked a brisk conversation among professional economists and amateur market watchers about what the Sahm rule is, how it works and why investors should care about it.
After Sahm declared that the rule hadn’t triggered, some on social media accused her of misrepresenting her own rule, said the economist, who now runs her own consulting business.
She was surprised by this, she told MarketWatch, since she thought the rule’s simplicity was one of its most important features.
It was initially devised with lawmakers in mind, intended to become an automatic mechanism to send out stimulus checks more quickly as a recession begins, thus helping to shield workers from some of the worst financial consequences.
But the debate has helped her realize that perhaps the rule’s dynamics aren’t clearly understood by all.
To try to remedy this, she published a step-by-step guide explaining how the Sahm rule is calculated, or at least how Sahm and the Fed calculate it. Economists are free to devise their own variations on the rule. Here are some key points:
- The Sahm rule uses the three-month average of the monthly unemployment rate, instead of taking the latest rate in isolation.
- The current average is then compared with the lowest three-month average from the past year. Right now, that stands at around 3.5, Sahm said.
- The 12-month low is subtracted from the current three-month average, and if the difference is 0.5 percentage point or greater, it means the rule has triggered. The rule is based on history and it has a strong precedent, meaning that almost every time unemployment has risen past this threshold, a recession has ensued.
The snowball effect
The logic undergirding the rule is pretty straightforward, Sahm said: The rule is grounded in the notion, supported by historical data, that once employment starts to rise, it often snowballs.
Typically it increases by anywhere between 4 and 6 percentage points during a recession, Sahm said.
But just because the rule has held in the past doesn’t mean it always will. Sahm has previously said that she wouldn’t be surprised if the rule were to break because of pandemic-related distortions in the global economy.
She affirmed on Friday that she still believes this to be the case, although she doubts the rule will trigger this cycle.
That is largely because, as Sahm sees it, the rise in the unemployment rate has been driven not only by slowing job creation, but by workers returning to the workforce, a sign that supply-and-demand dynamics in the U.S. labor market are coming back into balance, and that maybe employers won’t need to be as precious about hiring in the future.
“If [the rebalancing] happens fast enough, then we won’t trigger. But if it slows down, then maybe we’ll trigger, but we’ll likely see unemployment move sideways before coming back down,” Sahm said.
Labor Department data showed the U.S. economy added 199,000 jobs in November, surpassing economists’ expectations for 190,000 new jobs. The number was also higher than the 150,000 created during the previous month.
See: Job report shows gain of 199,000 in November. Wages are still hot.
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U.S. stocks end higher after blockbuster September jobs report as S&P 500 snaps 4-week losing streak
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U.S. stocks closed higher Friday, with the S&P 500 eking out a modest weekly gain, as investors assessed a monthly jobs report that showed both a blockbuster surge in jobs created along with a slowdown in wage pressures.
How stock indexes traded
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The Dow Jones Industrial Average
DJIA
rose 288.01 points, or 0.9%, to close at 33,407.58. -
The S&P 500
SPX
gained 50.31 points, or 1.2%, to finish at 4,308.50. -
The Nasdaq Composite
COMP
climbed 211.51 points, or 1.6%, to end at 13,431.34.
For the week, the Dow slipped 0.3% while the S&P 500 edged up 0.5% and the Nasdaq gained 1.6%. The Dow fell for a third straight week, while the S&P 500 snapped a four-week losing streak and the Nasdaq saw back-to-back weekly gains, according to Dow Jones Market Data.
What drove markets
U.S. stocks climbed Friday, after reversing course from their slide earlier in the session as investors parsed a U.S. employment report that was stronger than forecast.
“Wages slowed down,” said José Torres, senior economist at Interactive Brokers, in a phone interview Friday. “That was a great development” as the Federal Reserve aims to bring down inflation through monetary tightening.
Investors have worried that a hot labor market will keep wage growth elevated, adding to inflationary pressures that could see the Fed keep interest rates higher for longer or potentially hike its benchmark rate one more time this year.
A report Friday from the Bureau of Labor Statistics showed the U.S. economy created 336,000 jobs in September, far surpassing economists’ expectations for 170,000 new jobs. Also, the report said job gains in August and July were revised higher.
See: Jobs report shows big 336,000 gain in hiring in September. Labor market still hot.
But other details from the report were slightly more favorable in terms of monetary policy concerns.
For example, average hourly wages rose a mild 0.2% in September, bringing the 12-month rate of change through September to 4.2%, a slower pace than the prior month’s year-over-year rate of 4.3%.
“Even though the headline number was 2.5 times what Wall Street had anticipated, the more important detail below the surface was that wage inflation actually cooled,” said Sam Stovall, chief investment strategist at CFRA, during a phone interview with MarketWatch.
Renaissance Macro Research’s Neil Dutta said in a note that the jobs report was consistent with a soft landing for the economy and the Fed’s objective to lower the inflation rate back to 2%.
“The strong labor market gives credence to the base case still being a soft landing,” said Yung-Yu Ma, chief investment officer at BMO Wealth Management, in a phone interview Friday. But that soft-landing narrative is “somewhat fragile and data dependent,” he said.
See: U.S. stocks stage a surprising rally on Friday. But can the party last?
Investors will be watching for data scheduled to be released next week on September inflation from the consumer-price index and producer-price index.
Meanwhile, economists from Goldman Sachs Group said in a note Friday that “the continued rebalancing of the labor market” is consistent with their expectation that the Fed is done raising rates this year, despite senior Fed officials projecting another hike in their latest batch of forecasts, released last month.
Federal-funds-futures traders are expecting the Fed will keep its benchmark rate at the current range of 5.25% to 5.5% at its policy meetings in November and December, according to the CME FedWatch Tool.
“I’m of the belief that the Fed will not hike again this year,” BMO’s Ma said. “I don’t think it needs to.”
Meanwhile, the yield on the 10-year Treasury note
BX:TMUBMUSD10Y
climbed 6.8 basis points to 4.783%, rising for five straight weeks, according to Dow Jones Market Data.Rising Treasury yields, particularly on the long end of the yield curve, have been blamed for a selloff in stocks over the past couple months. But the S&P 500 is now up so far in October, with a small gain of 0.5%, according to FactSet data.
Companies in focus
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Pioneer Natural Resources Co.
PXD,
+10.45%
shares jumped 10.5% following a report in The Wall Street Journal that Exxon Mobil is closing in on a deal to buy the Texan shale driller for about $60 billion. Exxon Mobil
XOM,
-1.67%
shares declined 1.7% on the news. -
Levi Strauss & Co.
LEVI,
-0.83%
shares fell 0.8% after the retailer late Thursday cut its outlook for the full year and its executives noted a “continued softness in the wholesale channel, primarily in the U.S.” -
Tesla
TSLA,
+0.18%
edged up 0.2% after the automobile maker cut the price of its Model 3 cars from $40,240 to $38,990 and dropped the cost of its model Y electric vehicles from $50,990 to $45,990 in the U.S. -
Koninklijke Philips‘
PHG,
-7.20%
shares dropped 7.2% after the U.S. Food and Drug Administration called for more testing of its recalled sleep and respiratory devices, following concerns about foam used in millions of recalled products.
Steve Goldstein contributed to this report.
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The Dow Jones Industrial Average
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UK Economy Shrank More Sharply Than Expected in July
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By Joshua Kirby
The U.K. economy contracted more than expected in July, suggesting activity is cooling in the face of monetary tightening by the Bank of England.
Gross domestic product fell 0.5% compared with the previous month, data from the Office for National Statistics showed Wednesday. This missed forecasts for a shallower 0.2% fall in output, according to economists polled by The Wall Street Journal ahead of the release.
On an annual basis, the economy was flat in July, the figures showed. Economists had expected a 0.4% rise.
The contraction comes after the economy grew above expectations in the second quarter, driven by a stronger-than-expected services sector. The fallback in July suggests the Bank of England’s policy of raising interest rates is beginning to take some heat out of the U.K. economy.
The BOE will next week decide to meet whether to raise its benchmark rate again, past its current 5.25%, as it looks to ease rapid price inflation.
Unemployment figures earlier this week showed the U.K. jobless rate inching up in the three months to July, though wage growth remained steady in the same period.
Write to Joshua Kirby at joshua.kirby@wsj.com; @joshualeokirby
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Fed rate hikes can end now that U.S. job gains are the size of an economy like Australia’s, says BlackRock
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The Federal Reserve can probably end its inflation fight now that the U.S. labor market is cooling after generating a historic 26 million jobs in roughly the past three years, according to BlackRock’s Rick Rieder.
“In fact, 26 million jobs is like adding an economy the size of Australia or Taiwan (including every man, woman, and child),” said Rieder, BlackRock’s chief investment officer in global fixed income, in emailed commentary following Friday’s monthly jobs report for August.
The August nonfarm-payrolls report showed the U.S. adding 187,000 jobs, slightly more than had been forecast, but also pointing to an uptick in the unemployment rate to 3.8% from 3.5%.
“Remarkably, 22 million people were hired between May 2020 and April 2022, and 11 million were added to the workforce from June 2021 to May 2023, as the economy has opened up massive amounts of roles for fulfillment,” said Rieder.
He expects wage pressures to ease, he said, and thinks the “economy may now have fulfilled many of its needs,” which should make the Fed feel more confident in “the permanence of lower levels of inflation,” so that it can slow or stop its interest-rate rises by year-end.
Hiring in the U.S. has slowed, except in education and in healthcare services, when looking at private payrolls based on a three-month moving average.
Payrolls are slowing in many sectors, expect education and healthcare
Bureau of Labor Statistics, BlackRock
The Fed has already raised interest rates in July to a 5.25%-to-5.5% range, a 22-year high, with traders in federal-funds futures on Friday pricing in only about a 7% chance of a Fed rate hike in September and favoring no hike again at the central bank’s November policy meeting.
Rieder of BlackRock, one of the world’s largest asset managers with $2.7 trillion in assets under management, said he thinks a Fed pause or outright end to rate hikes could calm markets, even if the Fed, as BlackRock expects, keeps rates high for a time.
U.S. closed mostly higher Friday ahead of the Labor Day holiday weekend, with the Dow Jones Industrial Average
DJIA
up 0.3%, the S&P 500 index
SPX
up 0.2% and the Nasdaq Composite Index
COMP
0.02% lower, according to FactSet.The 10-year Treasury yield
BX:TMUBMUSD10Y
was at 4.173%, after hitting its highest level since 2007 in late August, adding to volatility that has wiped out earlier yearly gains in the roughly $25 trillion Treasury market.Read on: This hadn’t happened on the U.S. Treasury market in 250 years. Now it has.
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Unemployment surge to 3.8% may be a summer-jobs mirage
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The U.S. unemployment rate jumped to an 18-month high of 3.8% in August. Does that mean the economy is tottering and layoffs are rising from near record lows? Ah, no.
The big increase in the jobless rate — from 3.5% in July — stemmed almost entirely from more people in the labor force.
People generally look for a job when they think it’s easy to find one and the pay is good. That’s a sign of a robust labor market, not a weakening one.
An estimated 736,000 people entered the labor force last month, but only about one-third found a job.
The other half million didn’t find a job right away, so they would be considered unemployed. The government includes anyone without a job who is actively searching for work in the unemployment rate.
Ergo, that’s why the jobless rate jumped three-tenths to 3.8%.
Digging a little deeper, the summer-jobs market for young people may have played an outsized role.
About 45% of the people who reportedly entered the labor force in August were between the ages of between 16 and 24 years old, noted Omair Sharif, president of Inflation Insights.
As it turns out, a similar 724,000 spike in the size of the labor force took place in August 2022. And once again it was driven by an increase in young jobseekers.
What’s going on? Young people working summer jobs may have simply stayed on a bit longer than the government’s employment survey could account for.
“This looks like an anomaly associated with the summer jobs market,” said chief economist Stephen Stanley of Santander Capital Markets.
What happened after August 2022? The size of the labor force fell or moved sideways for the next three months. The unemployment rate also declined.
If the same scenario plays out again this fall and the labor force shrinks, the unemployment rate could drop back down again in the next few months.
There also could be another, less positive, explanation for the large increase in the number of people seeking work in August. Maybe they need the spending money to keep their current standard of living in light of high inflation and the depletion of their Covid-era savings.
“This could also be a possible sign of stress, with households having to come back to the labor market to pay bills and maintain current spending habits,” said senior economist Sam Bullard of Wells Fargo.
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What recession? The labor market is sizzling in these states.
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Not so long ago, many economists and very smart people were predicting that an economic recession would take place in the summer of 2023. In reality, the unemployment rate fell in seven states between June and July, and in most other states, the labor market remained strong, according to Bureau of Labor Statistics data released Friday.
The state with the lowest unemployment rate was New Hampshire, with a rate of 1.7%. Thirty-six states are at or below the historically low national unemployment rate of 3.5%, while 14 states, along with Puerto Rico and Washington, D.C., are above that level.
In four states — Vermont, Hawaii, Florida and Indiana — employment rose from the previous month. Employment in 46 states and Washington, D.C., was essentially unchanged, with the absolute number of new jobs or job losses being statistically insignificant.
The data are drawn from two different surveys: The unemployment rate is from the Local Area Unemployment Statistics program, which is a household survey, while data on nonfarm-payroll employment is based on a survey of employers and establishments.
To get another glimpse of the employment situation, see MarketWatch’s interactive that breaks down nonfarm employment by industry.
Check out the full list of states and their unemployment rates and employment statistics below.
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UK Jobless Rate Rose in Three Months to June, But Wages Kept Increasing Too
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The U.K.’s jobless rate climbed a little more than expected in the three months to June, but didn’t prevent a further uptick in pay growth.
The unemployment rate stood at 4.2% in the period, according to data from the Office for National Statistics published Tuesday. This was slightly higher than forecast by a Wall Street Journal poll of economists, who predicted a 4.0% rate.
Average…
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‘The Fed will take comfort from moderating job growth’ — economists react to July’s employment report
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The July jobs report on Friday showed the U.S. economy gained 187,000 jobs last month, with the unemployment rate dipping to 3.5% from 3.6%.
Economists polled by The Wall Street Journal had expected an addition of 200,000 jobs and unemployment staying at 3.6%.
See: U.S. adds 187,000 jobs in July
Below are some initial reactions from economists and other analysts, including their views on what the jobs report means for the Federal Reserve as the central bank considers how to proceed with interest-rate hikes. U.S. stocks
ES00,
+0.48% SPX
looked set to trade up modestly following the data on nonfarm payrolls.• “The Fed will take comfort from moderating job growth, but will continue to fret about the tight labor market. So far, the July employment and CPI reports are a wash for the Fed’s September 20 decision (we expect no change in rates), placing extra pressure on the August releases to add some clarity.” — Sal Guatieri, senior economist at BMO Capital Markets, in a tweet
• “This month’s slow job growth is a sign the economy is continuing to cool; while a negative in some senses, this is a positive indicator for the Fed and may soon end its interest rate hikes. … Moving forward, we anticipate the unemployment rate will remain low. We also expect unemployment will rise to its natural long-run rate of 4.5% over the next two years.” — Steve Rick, chief economist at TruStage, previously known as CUNA Mutual Group, in a note
• “Since bad news is good news these days, Jay Powell will be smiling this morning, if not entirely happy. The below consensus reading in hiring in the July payrolls is the type of labor market softening the Fed is looking for. … But there were some more mixed elements in the report as well. The unemployment rate ticked down a notch to 3.5% and average nominal wages grew 0.4% for the second consecutive month. The Fed will continue to be looking for a broader set of data and will be focused on a further deceleration in prices before throwing in the towel for September.” — Ali Jaffery, economist at CIBC, in a note
• “The wage data is stronger than the payroll data, suggesting that demand for labor is still robust, and that the slowing pace of hiring is more due to a lack of supply of labor. [Average hourly earnings] rose 0.4% in July, same as May and June. AHE Y/Y was steady at +4.4%. This, combined with the firmer household survey data, should keep the Fed on their toes for another rate hike as soon as next month, but the [consumer price index] data next week will have a big influence in that decision as well.” — Thomas Simons, U.S. economist at Jefferies, in a note
• “If you were to write the script of what a soft landing looks like, this is it. Payrolls grew a strong +187k, signaling a slower yet still strong — and more sustainable —pace.” — Justin Wolfers, University of Michigan economics professor, in a tweet
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U.S. adds 187,000 jobs in July and points to hiring slowdown. Wages still high
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The numbers: The U.S. added a more modest 187,000 new jobs in July, perhaps a sign the economy is cooling enough to drive inflation lower and even stave off further increases in interest rates.
Employment growth has fallen below 200,000 two months in a row for the first time since the onset of the pandemic in 2020.
The unemployment rate, meanwhile, dipped to 3.5% from 3.6%, the government said Friday.
After the report, stocks rose and bond yields fell.
Senior officials at the Federal Reserve will decide whether to raise interest rates again in September after reviewing a handful of reports on jobs, wages and inflation.
A sign advertises job openings in Illinois. The economy created 187,000 jobs in July.
Scott Olson/Getty Images
Higher rates work to slow inflation by depressing the economy, but they also raise the risk of recession. The Fed is aiming to extinguish high inflation without triggering a downturn — what economists call a “soft landing.”
The good news? Inflation has slowed a bit faster than expected recently. Yet while the labor market appears to be cooling, a shortage of workers is keeping upward pressure on wages.
Wages rose 0.4% in July. The increase over the past 12 months was unchanged at 4.4%.
Fed officials want to see annual wage growth return to pre-pandemic levels of 3% or less.
The pace of hiring is also faster than the Fed would like. The economy probably only needs to add 100,000 jobs a month to absorb all the people entering the labor force in search of work, Fed officials said.
Key details: The increase in hiring in July was concentrated in just a handful of areas, mostly health care and social assistance.
Some 87,000 jobs — or 47% of July’s total — were created by medical providers and social programs.
Hiring also rose slightly in leisure and hospitality, finance, wholesale and government.
While the economy is still creating lots of new jobs, fewer industries are hiring. The percentage of firms adding jobs vs. the share reducing them fell close to a record low last month. That’s a sign the labor market is cooling off.
Hiring in June and May was also weaker than previously reported.
Job gains in June were reduced to 185,000 from 209,000, marking the smallest increase since the end of 2020.
The increase in employment in May was cut to 281,000 from 306,000.
Another sign of a softening labor market: The number of hours people work fell a tick to 34.3 and matched a post-pandemic low. Businesses tend to cut hours before resorting to layoffs when the economy slows.
The share of people working or looking for work, meanwhile, was unchanged at a post-pandemic high of 62.6%.
High labor-force participation can also help to reduce inflation. When more people are looking for work, companies don’t have to raise wages as much to obtain labor.
Big picture: Can the Fed really pull off a soft landing — something it’s only done once or twice since World War Two? Senior officials are increasingly convinced it’s doable.
The Fed economic staff recently dropped its forecast of a recession and a majority of Wall Street economists now say a downturn is unlikely in the next year.
The economy still isn’t out of danger, though. The Fed has raised interest rates to the highest level in a few decades and some key parts of the economy are suffering.
If progress on reducing inflation wanes and rates go even higher, the economy would be more vulnerable to a recession.
Looking ahead: “Today’s July jobs report is consistent with a soft landing in the U.S. economy,” said chief economist Gus Faucher of PNC Financial Services. “Job growth is gradually slowing to a more sustainable pace.”
“The July employment report should not change the Fed’s hawkish lean,” said Nationwide Chief Economist Kathy Bostjancic. “But officials will want to see the August employment report and the next two inflation monthly readings before deciding whether they can remain on hold or if further rate hikes are required to cool labor demand and inflationary pressures.”
Market reaction: The Dow Jones Industrial Average
DJIA
and S&P 500
SPX
were set to open higher in Friday trades. The yield on the 10-year Treasury BX:TMUBMUSD10Y fell to 4.1%.[ad_2]
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U.S. economy grows at slowest pace in 5 months. Inflation ‘sticky,’ S&P says
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The numbers: The U.S. economy grew at the slowest pace in five months in July, a pair of S&P surveys showed, and pointed to weaker conditions later in the year.
The S&P flash U.S. services-sector index fell to 52.4 from 54.4 in the prior month. That’s the lowest reading since February.
Most Americans are employed on the service side of the economy, in areas such as technology, healthcare, finance and hospitality.
The S&P U.S. manufacturing-sector index, meanwhile, rose to 49 from 46.3, but it has been negative for months.
The S&P Global surveys are among the first indicators each month to provide an assessment of the health of the economy. Any number above 50 signals expansion, while numbers below 50 point to contraction.
One caveat: The S&P Global surveys have been more negative this year than other indicators of the U.S. economy.
Key details: New orders, a sign of demand, rose slightly but were relatively soft. Hiring was also the weakest since January.
Prices continued to rise for both raw materials and labor.
“The stickiness of price pressures meanwhile remains a major concern,” said Chris Williamson, chief business economist at S&P Global. “[F]urther falls in the rate of inflation below 3% may prove elusive in the near term.”
Big picture: The large service side of the economy is keeping the U.S. forging ahead, but it might be losing some steam. The Federal Reserve is expected to raise interest rates again this week, and higher borrowing costs have trimmed the sails of the economy.
Manufacturers, for their part, are lagging well behind and arguably are already in a recession of sorts.
Not just in the U.S., either. Manufacturers are struggling even more in Europe and other parts of the world as consumers shift spending to services from goods.
Read: Eurozone Economy Contracts Further in July, PMIs Suggest
A recession still appears far off, however. A new survey of business economists shows that 71% think a U.S. downturn is at least a year away.
Looking ahead: “July is seeing an unwelcome combination of slower economic growth, weaker job creation, gloomier business confidence and sticky inflation,” Williamson said. “Business optimism about the year-ahead outlook has deteriorated sharply to the lowest seen so far this year.”
Market reaction: The Dow Jones Industrial Average
DJIA,
+0.52%
and S&P 500
SPX,
+0.40%
rose in Monday trades.[ad_2]
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‘This is the best possible jobs report’ — economists react to June employment data
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The June jobs report on Friday showed the U.S. economy gained 209,000 jobs last month, with the unemployment rate dipping to 3.6% from 3.7%.
Economists polled by The Wall Street Journal had expected an addition of 240,000 jobs and an unemployment rate of 3.6%.
See: Jobs report shows 209,000 gain in June — smallest increase since end of 2020
Below are some initial reactions from economists and other analysts, including their views on what the jobs report means for the Federal Reserve as the central bank considers how to proceed with interest-rate hikes. The main U.S. stock indexes
SPX,
-0.29% COMP,
-0.13%
traded mixed following the data on nonfarm payrolls, also called NFP.• “This is actually a great number. This is a number that is something we can sustain. We can’t sustain adding 300,000, 400,000, 500,000 jobs a month. We need to see it slow. It’s doing exactly what it needs. If we’re going to have a soft landing, this is what it looks like. So I don’t think that we should make too much of this number being bad. But I do think that the Fed train is rolling toward another rate hike, but I wouldn’t put my money on a second one yet.” — Betsey Stevenson, economics professor at the University of Michigan and a former Obama White House economist, in a CNBC interview
• “In a sense, this is the best possible jobs report, then, threading the needle between too strong and too weak. People should be happy to see decent job growth and decent wage growth. The Fed can take pleasure in slowing momentum and wage growth stabilizing rather than rising, while bond traders can breathe a sigh of relief there is no sign of the strength picked up by ADP yesterday. It is win, win, win.” — Chris Low, chief economist at FHN Financial, in a note
• “The 209,000 rise in non-farm payrolls in June was the weakest gain since December 2020 and suggests labor market conditions are finally beginning to ease more markedly. That said, it is unlikely to stop the Fed from hiking rates again later this month, particularly when the downward trend in wage growth appears to be stalling.” — Andrew Hunter, deputy chief U.S. economist at Capital Economics, in a note
• “Overall, the cooling in hiring is a welcome development, but the pace is still above growth in the working-age population, and combined with continued wage pressures and the drop in the unemployment rate, this leaves the Fed on track to hike rates by 25 [basis points] in both July and September.” — Katherine Judge, senior economist at CIBC, in a note
• “Black unemployment went up to 6.0% for June, and is a statistically significant change from 5.0% in March. So while the employment rate is historically high, there is still room for growth. (As always when we’re talking about historical exclusion & discrimination).” — Kate Bahn, economist and research director at WorkRise, which is affiliated with the Urban Institute, in a tweet
• “The markets maybe made too much of the ADP number, as that has shown to be not always exactly a great indicator. … The labor market is cooling, but marginally. Most importantly, though, the average hourly earnings number suggests still some firming in that space, and that’s where the Fed has been primarily focused. So for me, this is maybe a little lighter, but not a dramatic change in terms outlook and expectations.” — Roger Ferguson, former Fed vice chair, in a CNBC interview
Now read: Part-time work surged in June as hours cut back, U.S. jobs report says
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Part-time work surged in June as hours cut back, U.S. jobs report says
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One worrying sign emerged from June’s job markets report — there was a big pickup in the ranks of those working part-time involuntarily.
According to the Labor Department, there were 452,000 people who said they were part-time for economic reasons. Part of that, the government said, were those whose hours were cut due to slack work or business conditions.
The series is a volatile one, but if the period around the COVID-19 pandemic outbreak is excluded, it was the biggest monthly rise since Aug. 2019.
Average weekly hours were 34.4 in June — a tenth above May’s reading, but down from the post-COVID peak of 35 hours in Jan. 2021.
U.S. stock futures
ES00,
-0.04%
were pointed lower after the release of the data, including the headline 209,000 rise in nonfarm payrolls.“I’m in the good news is good for stocks camp and this data was probably slightly skewed to the bad side, which will drag on risk assets as the market digests it,” said Peter Tchir of Academy Securities.
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Eurozone Unemployment Held at Record Low in May
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By Ed Frankl
The eurozone’s unemployment rate held steady at a record low in May, a reflection of a persistently tight labor market and a signal that European Central Bank policymakers might need to act further to curb economic activity as they try to lower inflation.
The bloc’s unemployment rate was 6.5% in the month, matching the level of April, according to data from the European Union’s statistics agency Eurostat released Friday.
The May reading was the same as expectations from economists polled by The Wall Street Journal. The rate has been steadily falling since it reached 8.6% in August 2020, at the height of the pandemic.
The number of unemployed people in the eurozone in May fell 57,000 compared with April to 11.01 million, Eurostat said. Youth unemployment rate was stable at 13.9% in May.
Across the euro area, the labor market remains tight. Seasonally adjusted unemployment levels held steady in Germany, and France, at 2.9% and 7.0% respectively, while it fell by 0.2 percentage points in Italy to 7.6% and rose by 0.1 points to 12.7% in Spain, Eurostat said.
But there are signals that the labor market could be loosening. Germany earlier Friday reported that its adjusted unemployment figure–based on national standards–rose unexpectedly to 5.7% from 5.6%. This could ease the pressure on the European Central Bank, which sees a cooling labor market as a sign that its interest-rate hikes could be helping curtail economic activity in its efforts to lower inflation.
Write to Ed Frankl at edward.frankl@wsj.com
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UK Jobless Rate Fell in Three Months to April
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By Joshua Kirby
The U.K.’s jobless rate fell in the three months to April, reversing previous months’ rises, while pay growth continued to edge up.
The unemployment rate stood at 3.8% in the period, according to data from the Office for National Statistics released Tuesday, slightly below the 3.9% booked in the January-March period and lower than the 4.0% expected by economists polled by The Wall Street Journal.
The rate came down after recent steady rises, having reached a long-time low of 3.5% in August last year.
Average weekly earnings, excluding bonuses, increased 7.2% on year in the three months to April, outstripping the 6.7% the previous month and higher than the 7% expected by economists. This may add to concerns at the Bank of England as it strives to tackle high inflation rates, though wage growth “tentatively seems to have peaked,” analysts at bank ING said in a note ahead of the release.
Vacancies fell by 79,000 in the three-month period to May from a total 1.08 million previously. The lower rate came as economic concerns held back recruitment, the ONS said.
Write to Joshua Kirby at joshua.kirby@wsj.com; @joshualeokirby
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U.S. jobless claims leap to nearly two-year high of 261,000
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The numbers: The number of people who applied for U.S. unemployment benefits in early June jumped to a nearly two-year high of 261,000, but most of the increase took place in just two states: Ohio and California.
New jobless claims in the seven days ended June 3 climbed by 28,000 from the prior week, the Labor Department said Thursday. The figures are seasonally adjusted.
Layoffs rose early in the year and pushed jobless claims above 200,000, but until this week, Jobless claims has barely changed since the spring and indicated that layoffs remained low.
Key details: Of the 53 U.S. states and territories that report jobless claims, 27 showed an increase last week. The other 26 posted a decline.
Most of the increase was in California and Ohio. Minnesota also saw a sizable increase.
Actual or unadjusted claims surged by 6,345 in Ohio to 16,717 — an unusually large gain.
And they rose by 5,173 to 48,750 in California, the state with by far the largest number of jobless claims. That could reflect tech-related layoffs.
Yet lots of states, including California, have suffered from a flood of fraudulent claims since the pandemic. Massive fraud in Massachusetts, for instanced, skewed the national jobless claims totals from March through May.
Before seasonal adjustments, new U.S. jobless claims were a much smaller 219,391 last week. That was up from 208,856 in the prior week.
The Memorial Day holiday may have also influenced new filings. Some people either delay or accelerate their claims applications around a holiday.
The number of people collecting unemployment benefits in the U.S., meanwhile, fell by 37,000 to 1.76 million.
A gradual increase in these so-called continuing claims over the past year suggests it’s taking longer for people who lose their jobs to find new ones.
Big picture: Unemployment claims typically begin to rise when the economy is deteriorating and a recession is approaching. The latest increase could be a red flag, but it will take a series of higher readings to cement the case.
Still, the increase in claims could give the Federal Reserve more reason to “skip” another increase in U.S. interest rates when senior officials meet next week.
Wall Street widely expects the Fed to stay put to give it more time to evaluate the economy and gauge how quickly inflation is slowing after a series of rate hikes over the past year. The Fed hopes the labor market will cool off further and reduce the upward pressure on wages.
Looking ahead: “The latest reading reflects a holiday-shortened week, which ought to raise suspicions that the big move was more noise than signal,” said chief economist Stephen Stanley of Santander Capital Markets. “I am eager to see next week’s reading before I draw any conclusions.”
“Rising initial jobless claims is a classic leading indicator of a recession, but a one-week jump is too little data to call a trend,” said Bill Adams, chief economist at Comerica.
Market reaction: The Dow Jones Industrial Average
DJIA,
+0.44%
and S&P 500
SPX,
+0.40%
were narrowly mixed in Thursday trades.[ad_2]
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Jobs report shows a big 339,000 gain in May. The U.S. economy is still strong.
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The numbers: The U.S. added a muscular 339,000 new jobs in May, underscoring the resilience of the economy in the face of rising borrowing costs.
Employment gains in April and March were also considerably higher than previously reported, the government reported Friday, in another sign the labor market remains unusually strong.
Uncredited
Wall Street had forecast a 190,000 increase in new jobs, based on the government’s survey of business establishments.
The robust demand for labor suggests a widely predicted recession is still far away, but it complicates the Federal Reserve’s efforts to bring high inflation to heel.
The economy has been adding so many jobs it’s created a shortage of workers and is pushing wages higher. Rising pay has added to price pressures and left inflation stuck in the 4% to 5% range — three times higher vs. pre-pandemic levels.
The central bank had been expected to skip an interest-rate hike at its June 13-14 meeting to give it more time to assess the effect of prior increases on the economy. Senior officials are worried they will cause a recession if they act too aggressively.
The unemployment rate, meanwhile, rose to 3.7% from 3.4%, the government said Friday. That’s the highest level since last October.
The jobless rate rose mostly because of a sharp increase in the number of people who said they were unemployed and partly because more people entered the labor force.
Some economists pointed to the rise in unemployment, drawn from a separate household survey, as a potential warning sign.
“Usually, economists put more stock in the establishment survey, because it is based on a larger sample and is less volatile,” Julia Pollack chief economist at ZipRecruiter, said. “But the household survey has been more sensitive to the start of economic downturns.”
Economists also saw the moderation in wage growth as a sign the labor market might not be as strong as it looks. Hourly wages rose 0.3% in May to $33.11.
The increase in wages over the past year slowed to 4.3% from 4.4% and a peak of 5.9% last year.
Wages were rising less than 3% a year before the pandemic, however.
Key details: The increase in hiring was broad-based. Professional businesses (64,000) led the way. Hiring was also strong in government (52,000), health care (52,000) and bars and restaurants (33,000).
Employment even rose by 25,000 in construction, a sector that has struggled to find workers.
The only notable decline in employment was in information services, a category that includes the media and some high tech.
Also read: Global tech layoffs have surpassed 201,000 since the start of 2023
The share of people working or looking for work was flat at a post-pandemic high of 62.6%.
Rising labor-force participation can also help to reduce inflation. When more people look for work, companies don’t have to raise wages as much to obtain labor.
Employment gains in April and March were a combined 93,000 higher than previously reported.
The economy averaged a robust 283,000 new jobs in the past three months, but that’s down from 344,000 in the same period in 2022.
Big picture: The economy has softened a bit and a torrid labor market has partly cooled off since last year. But both might be too strong to ease the upward pressure on inflation.
Workers, for their part, are caught in a vice. Rising wages help them to cope with high inflation, but it also fans the fires of inflation.
The Fed is caught in a vice, too. Even if the central bank skips a rate hike in June, many economists say the Fed may have to raise rates again this year to truly tame inflation.
The higher rates go, though, the greater the odds of a recession. The Fed has jacked up a key short-term rate to a top end of 5.25% from near zero just 15 months ago, marking the highest level in 16 years.
Looking ahead: “The continued strength in employment pushes back the start of a prospective recession but does not eliminate that likelihood,” said chief economist Kathy Bostjancic of Nationwide. “And if the economy remains too hot to meaningfully slow inflation, the Fed will simply raise rates higher, still a path towards a downturn.”
Market reaction: The Dow Jones Industrial Average
DJIA,
+2.12%
and S&P 500
SPX,
+1.45%
were set to open higher before the jobs report. The yield on the 10-year Treasury BX:TMUBMUSD10Y rose slightly to 3.63%.[ad_2]
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Dow gains 450 points as U.S. stocks recover after 4 days of losses
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U.S. stocks recovered some ground on Friday, after four days of losses, as shares of regional banks rebounded and the main indexes received a boost from a strong April jobs and Apple’s better-than-forecast earnings.
What’s happening
On Thursday, the Dow Jones Industrial Average fell 287 points, or 0.86%, to 33,128. It remains on track for a 1.5% weekly drop.
What’s driving markets
In…
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Jobs report shows strong 253,000 increase in April. U.S. labor market not cooling much
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The numbers: The U.S. created a stronger-than-expected 253,000 new jobs in April and wages rose sharply, indicating there’s still lot of demand for labor even as the economy slows.
The increase surpassed the 180,000 forecast of economists polled by The Wall Street Journal.
The unemployment rate, what’s more, fell a tick to 3.4% from 3.5%,…
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