What is happening with the labor markets?

Is the US labor market cooling?

The COVID-19 pandemic was a seismic event that reshaped the world in countless ways. Among its many impacts, one of the most profound has been on consumer behavior. When the world locked down, people found themselves confined to their homes, and in response, there was a dramatic surge in the consumption of goods. Fast forward to the end of restrictions, and we saw an equally intense shift towards services, particularly in the form of “revenge travel.” But as we move further away from the pandemic’s peak, signs are emerging that consumers are now reaching a point of exhaustion.

The Labor Market

The US labor market, overheated after the pandemic, is now showing signs of cooling down, potentially even more than anticipated. Unemployment rose to 4.3% in July, up from 4.1% in June, as the labor force participation rate increased to 62.7%, indicating that more people are actively seeking work.

This rise in unemployment comes alongside a significantly slower-than-expected job growth rate. Nonfarm payrolls added only 114,000 jobs in July, falling short of the projected 180,000 and significantly lower than the revised June figure of 179,000 (initially reported as 206,000). This cooling labor market, characterized by slowing job growth and increasing unemployment, suggests that the US economy is not overheating.

This data could prompt the Federal Reserve to cut interest rates in upcoming meetings, a possibility already hinted at by Fed Chair Jerome Powell, who suggested a rate cut could come as early as September.

While some cooling was expected, the significant slowdown in job creation, combined with more people entering the workforce, creates a complex picture for policymakers navigating inflation concerns and economic stability.

The slow manufacturing recovery

Though the manufacturing economy has been struggling, the consumer economy has certainly been resilient — and now, near the middle of the third quarter of 2024, the U.S. is still not currently in a recession, according to a traditional definition.

What is happening with retail sales?

Retail sales continue to expand. The redbook index grew 5.1% in the week ending August 3rd, 2024. over the same week in the previous year. The index is a weekly indicator of year-over-year sales growth for large US general merchandise retailers. It's a sales-weighted average of same-store sales changes for about 9,000 stores that have been open for at least a year.

Takeaway

Given the current economic data, particularly the inflation figures, the Federal Reserve may be inclined to reduce interest rates in upcoming meetings. Fed Chair Jerome Powell has already hinted at this possibility, suggesting that a rate cut could occur as soon as September.

While some cooling was expected, the significant slowdown in job creation, combined with more people entering the workforce, creates a complex picture for policymakers navigating inflation concerns and economic stability.

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