The U.S. economy created 206,000 nonfarm jobs in June, according to data from the data released Friday by the Bureau of Labor Statistics, The Labor Department reports. Despite interest rate hikes, the labor market in the world’s largest economy has remained buoyant in recent years. Analysts had expected the creation of some 194,000 jobs, which is slightly above forecasts. The unemployment rate, however, rose from 4.0% to 4.1%, a tenth of a percentage point higher than expected.
Economists have long been studying the differences between the two main surveys that take the temperature of the American labor market. The survey of employers has consistently shown stronger job creation than the survey of households, which is used to calculate the unemployment rate. The explanation for the discrepancy is not entirely clear, but experts point to problems with both samples. For one, the survey of employers probably underestimates the number of companies that close and disappear, thus underrepresenting successful ones. For its part, the survey of households may be overlooking job creation among the immigrant population, which is more likely to escape the analysis of statistical authorities.
“Sometimes you can’t reconcile the differences. You just have to look at it and try to understand it,” Federal Reserve Chairman Jerome Powell said after the latest policy meeting last month. “We’re dealing with mixed results and we have to deal with uncertainty surrounding the data. But the overall picture is one of a strong and gradually cooling labor market.”
The US labour market has shown enormous resistance to the Federal Reserve’s tightening of monetary policy, the most aggressive since the 1980s, with which the central bank has been fighting the highest inflation in four decades. Powell believes that the labour market has found a better balance between job openings and unemployed workers. An overly rigid market, in which it is not easy to find labour, pushes wages up, with the risk of generating a wage-price spiral that will lead to inflation becoming entrenched.
“The strong job creation over the past two years has been accompanied by an increase in the supply of workers, reflecting the increase in the labor force participation rate among people aged 25 to 54 and the continued strong pace of immigration,” Powell said a few weeks ago. “Nominal wage growth has slowed over the past year and the gap between the number of jobs and the number of workers has narrowed. Overall, a broad set of indicators suggests that labor market conditions have returned to where they were before the pandemic: relatively tight, but not overheated,” he added.
Federal Reserve policymakers expect the unemployment rate to remain at 4.0% through the end of the year and rise to 4.2% in 2025. That is a soft-landing scenario for the economy that is not taken for granted.
Investors are closely watching employment and price data to anticipate the next moves in interest rates. The market assumes that rates will remain at their highest level in 23 years at the meeting later this month, but gives a high probability that the first 0.25 point cut will come at the last meeting of the summer, on September 17 and 18. according to CME Group’s Fedwatch tool.
Strong job creation is one of US President Joe Biden’s assets as he looks to re-election. Biden will hold a rally in the industrial state of Wisconsin on Friday, where he will boast about the strength of the labor market. The president is trying to recover from the terrible image he gave in the disastrous televised debate against Donald Trump last week in Atlanta. More than his economic legacy, citizens are concerned about his age, his physical fitness and his mental acuity. Biden is facing political, media and financial pressure to withdraw from the re-election race, but for now he remains determined to fight.
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