By Lucia Mutikani
WASHINGTON (Reuters) – The U.S. economy is likely to have maintained a moderate pace of job growth in September, while the unemployment rate is expected to remain steady at 4.2%, which would further reduce the need for the Federal Reserve to make major interest rate cuts. last two meetings of the year.
However, the labor market is likely to experience some brief turbulence after Hurricane Helene devastated large parts of the southeastern US last week. Tens of thousands of Boeing engineers also went on strike in September, with negative consequences for the aerospace company’s suppliers.
A work stoppage by about 45,000 dockworkers on the East Coast and Gulf Coast ended late Thursday after their unions and port operators reached a tentative agreement. If Boeing’s strike continues beyond next week, it could depress nonfarm payrolls data for October, which will be released just days before the Nov. 5 U.S. presidential election.
Still, the tone of Friday’s closely watched Labor Department employment report is expected to remain consistent with a labor market losing momentum in an orderly manner. Wage growth is expected to remain solid and continue to support overall economic expansion.
The U.S. central bank’s Federal Open Market Committee kicked off the policy easing cycle last month with an unusually large interest rate cut of half a percentage point, and Fed Chairman Jerome Powell highlighted growing concerns about the health of the labor market.
“I certainly don’t expect a collapse in the labor market, but a continued slowdown,” said Dan North, senior economist at Allianz Trade North America. “The 50 basis point cut was a signal that they don’t want to fall behind, but don’t expect the rest to reach 50 basis points.”
Nonfarm payrolls likely rose by 140,000 jobs last month after rising by 142,000 in August, according to a Reuters survey of economists. Estimates ranged from an increase of 70,000 jobs to an increase of 220,000. That would be well below the monthly average profit of 202,000 over the past year. Economists expected August payroll figures to be revised higher, in line with the trend over the past decade.
Goldman Sachs noted that August wage growth has been revised upward by an average of 67,000 since 2010, with about two-thirds of that on the first revision.
Employment growth has been led by less cyclical sectors such as healthcare and government, but the pace has slowed in recent months as employment approaches pre-pandemic trends.
The share of industries reporting an increase in labor costs has largely declined this year.
“The challenge is that the labor market can be good until it isn’t,” said Elizabeth Crofoot, senior economist at Lightcast, a labor market analytics firm. “And the trends are not pointing in the right direction right now.”
Although the labor market has taken a step back, annual benchmark revisions of national accounts last week showed the economy is in much better shape than previously estimated, with upgrades to growth, income, savings and corporate profits.
This improved economic environment was acknowledged by Powell this week when he questioned investor expectations for another half-percentage-point rate cut in November, saying: “This is not a committee that is in a rush to cut rates quickly.” . “
LAUWE RENTALS
The US central bank raised interest rates by 525 basis points in 2022 and 2023 and last month implemented its first interest rate cut since 2020. The policy interest rate is currently in the range of 4.75%-5.00%.
Late Thursday, financial markets saw a roughly 65% chance of a quarter-percentage-point rate cut during the Fed’s Nov. 6-7 meeting, CME Group’s FedWatch tool showed. The probability of a 50 basis point cut was approximately 35%.
The slowdown in the labor market is driven by tepid hiring against the backdrop of increased labor supply, mainly due to an increase in immigration. Layoffs have remained low, supporting the economy through solid consumer spending.
“The negative economic impact resulting from this type of unemployment is much less severe than the unemployment rate rising due to redundancies,” said David Doyle, head of economics at Macquarie.
“When someone loses a job, the multiplier effect that ripples through the economy as a whole is much more severe than that of a student who graduates from college and has never had an income, and is now looking for work and can’t find a job. function.”
Average hourly wages are expected to have risen 0.3%, after a 0.4% gain in August. Wages are expected to have increased by 3.8% year-on-year, matching the increase in August. The average working week is expected to remain unchanged at 34.3 hours.
The forecast of no change in the unemployment rate, which rose from 3.4% in April 2023, is partly influenced by the start of the school year, when young people return to the classroom or give up their job search.
The 16 to 24 age group has been responsible for much of the recent increase in the unemployment rate.
An expected decline in temporary layoffs was also expected to limit unemployment.
Economists estimate that the economy will need to create as many as 200,000 jobs per month to keep pace with the growth of the working-age population, although this number could fall to around 150,000 or fewer as immigration has declined.
“Going forward, we believe it remains to be seen whether labor demand will prove strong enough to fully absorb new entrants into the labor market and halt the slow rise in the unemployment rate that has occurred since mid-2023,” say Goldman economists. Sachs wrote in a note.
(Reporting by Lucia Mutikani; Editing by Paul Simao)
