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Labor markets remained strong in August even as payrolls rose
less than the average of prior months and the unemployment rate
rose.
In August, nonfarm payrolls expanded by 315,000. While that is
below some recent readings, it is far larger than what would be
sufficient over time to absorb new entrants into the labor
force.
Some might point to the increase in the unemployment rate in
August, to 3.7%, as an early indication that labor markets are
beginning to soften. In our view, such an interpretation would be
premature. The rise in unemployment in August occurred amid
outsized increases in both the civilian labor force and civilian
employment, indications of ongoing robustness.
Our takeaway from the August employment report and other recent
data on labor markets, including near-record job openings, is that
labor demand is still very strong and labor markets are
extraordinarily tight. We expect labor demand to moderate in coming
quarters as firms adjust their workforces in response to sluggish
growth in output.
'Growth recession'
The US economy continues to expand, though at a sluggish pace
consistent with our expectation for a "growth recession" that will
lead to a significant rise in unemployment over the next few
years.
Fed Chair Jerome "Jay" Powell's Jackson Hole speech on Aug. 26
was intended to convey a strong determination to employ the tools
of monetary policy, especially higher interest rates, to prevent
high inflation from becoming entrenched and pushing up long-term
inflation expectations.
Powell signaled interest rates will have to be raised
considerably more to move policy into a restrictive stance while
hinting that the target for the federal funds rate could rise close
to 4%. The funds rate target would head even higher than indicated
if inflation does not slow appreciably over the next several
months.
A rate increase at the Federal Open Market Committee meeting
concluding on Sept. 21 is a sure bet, with an increase of either 50
basis points ("large") or 75 basis points ("super-sized") in play
pending subsequent data and developments. We think that 50 is more
likely than 75 this month in part because of hints in July data
that inflation is beginning to recede and consumer surveys pointing
to some easing of inflation expectations as gasoline prices fall
from recent highs.
Revisions to our third-quarter forecasts in the past
week:
GDP growth: We lowered our forecast of third-quarter GDP growth
by 0.1 percentage point to 1.3%. The change primarily reflects data
on state and local government employment that came in below
expectations, implying lower government consumption
expenditures.
This week's US economic releases:
International trade (Sept. 7): We expect the July gap between
the value of goods and services the U.S. sells overseas and what it
buys to narrow to $69.6 billion from $79.6 billion in June, based
on our processing of the advance report on trade in goods and our
assumption for the services balance.
Posted 06 September 2022 by Akshat Goel, Senior Economist, US Macro and Consumer Economics, S&P Global Market Intelligence and
Ben Herzon, Executive Director, Research advisory specialty solutions, S&P Global Market Intelligence and
Joel Prakken, Chief US Economist and co-head of US Economics, Research Advisory Specialty Solutions, S&P Global Market Intelligence and
Ken Matheny, Executive Director, Research Advisory Specialty Solutions, S&P Global Market Intelligence
This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.
