What to expect from the July jobs report: Steady, but cooler growth
Minneapolis CNN —
Despite Tuesday’s credit rating downgrade amid concerns about the challenges facing the United States, markets and economists are expecting another solid jobs report on Friday.
And while economic data isn’t typically the sexiest of topics, the monthly jobs report has in recent months delivered plenty of excitement and its fair share of surprises.
Last July, for example, the US economy added 568,000 jobs — more than double the 250,000 that economists had expected.
Come Friday, the government’s jobs report for this July might not end up being quite so shocking. In fact, it could be relatively humdrum: A slight cooling in job growth, and unemployment holding steady.
“To some extent, our predictions are a little bit boring, which is a good thing,” said Daniel Zhao, lead economist at Glassdoor. “There are always the risks of unexpected shocks, but right now, we’re on a good glide.”
Zhao’s predictions echo those of economists polled by Refinitiv, who are projecting US employers added 200,000 jobs last month and that the unemployment rate didn’t budge from the 3.6% registered in June.
Recession fears start to fade
If July’s job gains come in as expected, it would show that the labor market is continuing to gradually cool, but not collapse, in the face of 11 Federal Reserve interest rate hikes in a 16-month span.
It would also lend continued credence to the idea that a soft landing — when inflation is reined in without the deep layoffs seen in a recession — is still achievable.
“You can’t have a recession without a couple of months of payroll jobs in decline,” said Chris Rupkey, chief economist of FwdBonds. “They have to go down, and we don’t even have one month in decline.”
The United States is currently enjoying a 30-month streak of monthly job gains, consumer confidence remains high, the economy is growing, and inflation and inflationary pressures (including supply chain challenges, energy costs and wages) have eased.
That’s prompted some to pull their long-held recession forecasts off the table, including Bank of America economists, who on Wednesday said In a note to clients that they now expect growth to stay positive over the coming quarters.
“Our revisions imply we no longer expect a mild recession and, instead, think the economy may be able to skirt one,” Bank of America economists led by Michael Gapen wrote in the report.
Business leaders remain wary of a downturn, but confidence is improving among chief executives, according to new survey data published Thursday by the Conference Board.
The business group’s Measure of CEO Confidence rose to a reading of 48 in the third quarter of this year, up from 42 the quarter before. About 84% of the CEOs surveyed between July 10-24 said they were preparing for a recession in the next 12 to 18 months. That’s down from 93% in the second quarter.
The number of CEOs expecting no recession jumped to 17% from 2%, the Conference Board noted.
Growth in the face of a downgrade
Fitch Ratings, however, is not in agreement with that reversal. In its downgrade of the US debt rating, the credit ratings agency said it expects the nation to slip into a mild recession as early as the fourth quarter of this year. The agency noted that high levels of job vacancies, combined with labor participation rates running below pre-pandemic levels, could limit medium-term growth.
The broader economic scorecard for the United States makes the downgrade all the more “bizarre” and puzzling, noted top economists, including Treasury Secretary Janet Yellen. The ratings agency cited primarily political factors in its downgrade, including the debt ceiling brinksmanship, the January 6 insurrection, as well as expected fiscal deterioration.
Glassdoor’s Zhao said that if the economy remains more resilient and manages to avoid recession, it would make the medium-term fiscal picture more sustainable.
“But, conversely, the first issue Fitch highlights in their commentary is concerns about governance, most notably the debt limit standoffs,” Zhao said. “Usually, fiscal policy affects the labor market fairly slowly, but political crises have the potential to have a more immediate impact and if there’s a government shutdown or similar crisis in the cards, that risks pushing the economy off the tightrope to a soft landing and into a recession.”
Job cuts fall
But for now, the labor market sure isn’t acting like a recession is imminent.
The number of job cuts announced in July was the lowest in 11 months, according to fresh data released Thursday morning by Challenger, Gray & Christmas.
US-based employers announced 23,697 job cuts last month, a 42% drop from the 40,709 announced in June, according to the outplacement and coaching firm’s latest monthly report. It’s the first time this year that the monthly downsizing activity decreased from the same period in 2022, according to the report.
“The job market is remaining resilient in the face of rising interest rates, as consumers continue to spend and inflation falls,” Andy Challenger, senior vice president of Challenger, Gray & Christmas, said in a statement. “Companies, weary of letting go of needed workers, are finding other ways to cut costs. Many have slowed hiring, but wages continue to rise, particularly for the lowest-wage earners, for the moment.”
The technology sector, which has been shedding workers after bulking up during the pandemic, continued to lead all industries in layoffs in July, followed by health care product manufacturers. Artificial intelligence was cited as the reason for 60 of the 23,697 cuts, Challenger noted.
Jobless claims remain below pre-pandemic levels
The cooldown seen in layoff announcements aligns with the federal jobless claim activity. Claims for unemployment insurance have remained below pre-pandemic levels.
On Thursday morning, the Labor Department reported that Americans made 227,000 first-time filings for jobless benefits during the week ended July 29, an increase of 6,000 claims from the week before. Continuing claims, which are filed by people who have received unemployment benefits for more than one week, were 1.7 million for the week ended July 22.
Weekly jobless claims, which are volatile and frequently revised, remain below recent levels. In the decade before the pandemic, initial claims averaged 311,000, Labor Department data shows.
Next week’s filings, however, could climb closer to those levels. On July 30, the 99-year-old trucking company Yellow ceased operations and laid off its 30,000-person workforce.
“In the current job market, I think it should be fairly easy for workers who lose their jobs to find employment,” Gus Faucher, chief economist of the PNC Financial Services Group, told CNN. “That being said, if we do start to see these jobs losses start to accumulate, then that could be a signal of something more worrisome in the economy.”
While the number of job openings has fallen to its lowest level in two years, they’re still nearly 37% higher than they were in February 2020, the latest Bureau of Labor Statistics turnover data shows. Earlier this week, the BLS reported that there were 9.582 million available jobs in the US, amounting to 1.6 open jobs for every person looking for one.
“Employers, they’re really hiring to sell themselves out of a potential downturn,” said Becky Frankiewicz, president of ManpowerGroup. “They’re hiring to meet the demands of the American consumer, who’s eating out, shopping and enjoying leisure time this summer.”
She added: “As consumers demand these experiences and are living out of their house for the summer, we’re seeing that play through into job demand.”
The Bureau of Labor Statistics is set to release its closely watched July jobs report at 8:30 a.m. ET on Friday.
Source: CNN
