June jobs report not expected to show impending economic slowdown or recession

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

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The June jobs report is expected to show strong hiring continues across a wide range of industries and the labor market may so far be spared fears of a looming recession.

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

“Overall, we are looking for a very strong employment report. I think there have been concerns about a slowdown in consumer spending and the housing sector, but that is not showing up in the market yet. labor,” said Aditya Bhave, senior US and global economist at Bank of America.

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

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

But for now, economists are not worried about the labor market, and they note that jobless claims have only increased slightly. Initial unemployment benefit filings totaled 235,000 for the week ended July 2, a gain of 4,000 from the prior period.

“If our [payroll] the predictions are correct, they’ll probably lean towards 75,” Bhave said. “If you get a really bad number, they’d lean towards 50.”

Impact of the Fed?

Of course, employment is a lagging indicator, but economists also see the labor market as an area of ​​strength that should slow to a more normal 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 would be a place where an economic slowdown ultimately translates into higher unemployment and slower or negative job growth.

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

Aside from unprofitable startups and tech companies, Gimbel said he doesn’t see any layoffs or a slowdown in hiring. He does, however, see employees leaving venture-backed start-ups for positions with more established employers.

“I’ve never seen a recession with record high unemployment…Does the definition of a recession need to change or does crazy inflation equate to a recession?” he said. “I don’t know if that’s the case, but I don’t see the labor market slowing down anytime soon.”

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

Economists say the consumer price index, released next Wednesday, will be much more important to the Fed’s interest rate decision at its July 26-27 meeting. However, payroll data is also increasingly important.

Recession or not?

“Everyone I talk to in sales and trading is excited about how we’re heading into a recession, if we’re not already there,” said Kevin Cummins, chief U.S. economist at NatWest. . “If we get a really bad payroll impression or if you get a low average hourly wage, or if the unemployment rate were to go up, it would be a more active debate whether it’s 50 or 75.”

Cummins expects 300,000 payrolls to have been added in June, a number that would keep the Fed on track to increase by three-quarters of a point.

“If you get a consensus number, I think they’re still going to 75,” Cummins said. “It looks like they’re so worried about inflation expectations that they’re going to err on the side of restrictive territory.”

Cummins said the CPI inflation reading could be red hot when it comes out next Wednesday. He said the headline CPI could be 8.9%, down from 8.6% in May, the highest since 1981.

The Atlantic Fed’s now GDP forecaster signaled the economy could be in recession, as it forecast a 2.1% drop in gross domestic product for the second quarter last week. It currently shows GDP down 1.9%.

Economists surveyed in CNBC/Moody’s Analytics Quick Update forecast a 1.8% median increase in gross domestic product for the second quarter. Based on incoming data, they are tracking growth of around 0.5%.

Two consecutive negative quarters would signal a recession for many, but do not necessarily fit the formal definition which takes into account a broader set of factors. First-quarter growth contracted 1.6%.

Cummins argues that the first quarter shouldn’t have been negative, and that was purely because of trading and inventory. “You can’t take this data at face value and say things were contracting in the broader economy,” he said. But he said there was a slowdown in the economy and the second quarter could be weaker than the first.

“The labor market is still very healthy. It’s still strong but may not be robust,” he said.

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