The June jobs report is not expected to show an economic slowdown or a looming recession

Owner and Executive Chef, Steve Kemper, prepares food in the kitchen at Go Fish! Seafood restaurant and sushi bar in Sinking Spring, Pennsylvania, April 8, 2021.

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The June employment report is expected to show continued strong employment across a wide range of industries, and that the labor market may not yet be affected by fears of a recession on the horizon.

According to Dow Jones, economists expect 250,000 jobs added last month, down from 390,000 in May. Economists also expect the unemployment rate to remain steady at 3.6%, and wages are expected to rise 0.3%, roughly the same as May. The report is released at 8:30 a.m. ET on Friday.

said Aditya Bhave, chief U.S. and U.S. official and global economist at Bank of America.

Bhave expects stronger job growth at 325,000, but expects the pace of job creation to drop to around 100,000 by the end of 2022 or the beginning of 2023.

The jobs report could provide important clues as to whether the Fed will go full speed ahead this month with another 75 basis point rate hike, as it did in June, or slow down to a half point increase. One basis point equals 0.01%.

But for now, economists aren’t concerned about the labor market, and note that unemployment claims have increased slightly. Initial filings for unemployment benefits totaled 235,000 for the week ending July 2, an increase of 4,000 from the previous period.

“If we have [payroll] The predictions are correct, Bhavi said, they will probably lean towards 75. “If you get a really bad number, they will lean towards 50.”

Fed effect?

Employment is certainly a lagging indicator, but economists are also looking to the labor market as an area of ​​strength that should slow to a more natural pace as the Federal Reserve continues to raise interest rates. The question is whether the Fed will slow the economy too much, and the labor market will be one of the places where the economic slowdown will eventually manifest itself in higher unemployment and slower or negative job growth.

So far, the labor market is not showing many signs of weakness. Tom Gimple, founder of LaSalle Network, said the second quarter was a record for his recruiting firm. Accounting, finance and technology are the most important jobs.

Aside from emerging and unprofitable tech companies, Gimple said he doesn’t see layoffs or a slowdown in hiring. However, he is seeing employees leave venture-capital-funded start-ups to take positions at more established employers.

“I have never experienced a recession with a record low unemployment rate… Should the definition of recession change or does insane inflation equal stagnation?” He said. “I don’t know if that’s the case, but I don’t see a slowdown in the labor market anytime soon.”

Since March, the Federal Reserve has raised the federal funds rate from a range of zero to 0.25%, to 1.50% to 1.75%.

Economists say the CPI, which will be released next Wednesday, will be more relevant to the Federal Reserve’s decision on interest rates at its July 26-27 meeting. However, payroll data is taking on more import as well.

stagnation or not?

“Everyone I talk to in sales and trading is excited about how we’re headed into a recession, if we’re not already in a recession,” said Kevin Cummins, chief US economist at NatWest. “If we get a really bad payroll report or we get poor average hourly salaries, or the unemployment rate goes up, the discussion will be more active whether it’s 50 or 75.”

Cummins expects to add 300,000 payrolls in June, a number that should keep the Fed on track to raise a significant three-quarter point.

“If you get a similar number to the consensus, I think they’re still going to be 75,” Cummins said. “They seem so concerned that inflation expectations will become so unconstrained that they will err on the side of exaggerating it and go into restricted territory.”

Cummins said the CPI inflation reading could be very hot when it is released next Wednesday. He said the core CPI could reach 8.9%, up from 8.6% in May, the highest level since 1981.

The Atlantic Federal Reserve’s GDP forecast has now indicated that the economy may be in a recession, when it forecast a 2.1% drop in GDP for the second quarter last week. Currently showing GDP contraction of 1.9%.

Economists polled in CNBC/Moody’s Analytics Rapid Update expect a median increase of 1.8% in GDP for the second quarter. Based on the data received, it tracks their growth by about 0.5%.

Two consecutive negative quarters would indicate stagnation for many, but they do not fit the official definition that necessarily takes into account a wider range of factors. First-quarter growth contracted 1.6%.

Cummins argues that the first quarter shouldn’t have been negative, and it was only because of trade and inventories. “You can’t take this data at face value and say things are shrinking in the broader economy,” he said. But he said there is a slowdown in the economy, and the second quarter could be weaker than the first.

“The labor market is still healthy. It is still strong, but it may not be strong,” he said.

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