A key government report on Friday is expected to show slowing, but steady, job growth in June, with forecasters increasingly confident that the US economy is headed for a “soft landing”.
The latest economic signals show that the labor market is normalizing:
- The country’s unemployment rate has remained at or below 4% for 30 consecutive months.
- Wage gains averaged 277,000 in 2024, compared with 251,000 last year and 165,000 in 2019, before the pandemic hit the economy in 2020.
- Job openings, while still higher than in 2019, are easing into what economists say is a more typical balance between employer demand and the number of available workers.
- Companies have announced plans to cut roughly 435,000 jobs this year – down 5% from the same period in 2023, according to firm Challenger, Gray & Christmas.
- Pressures on wages are continuing to ease, giving companies more room to cut prices.
What to look for
Forecasters are looking for signs that the pace of employment is moderating, in line with slowing inflation, but not falling off a cliff, which would revive fears of a deep downturn.
Analysts polled by FactSet predicted employers added 192,000 jobs last month, compared with 272,000 in May. A significant slowdown in June employment from earlier this year would further confirm that the economy is contracting, as the Federal Reserve hopes. Starting in 2022, the Fed raised interest rates to their highest level in decades in an effort to slow growth and curb inflation.
Unemployment in June is expected to remain steady at 4%, which would indicate steady job growth. To that end, Elise Gould, an economist at the Economic Policy Institute, noted in a report that the unemployment rate for young adults is now on par with before the pandemic.
Monthly wage growth in June is also expected to ease to 0.3%, from 0.4% a month earlier, which would be in line with other recent data suggesting that inflation is gradually fading.
When will the Fed cut interest rates?
The Fed’s central challenge in restoring the health of the economy after the pandemic has been to help balance the supply and demand of workers without plunging the economy into a recession. And so far, the central bank has largely defied critics who predicted that aggressive monetary tightening would lead to a crash.
“The job market has really proven the doubters wrong,” said Andrew Flowers, chief economist at Appcast, which uses technology to help companies recruit workers.
In remarks in Sintra, Portugal this week, Fed Chairman Jerome Powell said inflation is slowing again after flaring up earlier this year, the Associated Press reported. The personal consumption expenditure index – a key indicator closely watched by the Fed – in May slowed to the smallest annual growth in three yearsincreasing the chances that the central bank will cut rates by the end of the year.
This does not mean that policymakers are quite willing to give up on the fight against inflation. Powell stressed that central bankers still need to see more data showing that annual price growth is approaching the Fed’s 2% annual target, and he warned that premature rate cuts could reignite inflation.
“We just want to understand that the levels we’re seeing are a true reading of core inflation,” Powell said.
Most economists think Fed officials will hold rates steady when they meet in late July, while a quarter-point cut in September is likely.
“The Fed is becoming more attentive to downside risks to the labor market, which strengthens our confidence in the forecast for the first rate cut in this easing cycle to occur in September,” according to Ryan Sweet, chief US economist at Oxford Economics. that. also expects another Fed rate cut in December.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, also expects a drop of a quarter of a point in September. That could be followed by deeper cuts in November and December, but only if the labor market weakens more than the Fed currently expects.