The labor market remained tight in July in the United States and even lower-than-expected job creation was not enough to curb wage growth, a necessary condition for a lasting decline in inflation.
The unemployment rate fell to 3.5% in July, compared to 3.6% the previous month, the Labor Department announced Friday. It thus remains in the historically low range of 3.4 to 3.7% in which it has evolved for a year and a half.
President Joe Biden welcomed these figures: “the unemployment rate at its lowest level and the share of working-age Americans who are employed at its highest level in 20 years: this is Bidenomics,” i.e. its economic policy, he stressed in a press release.
Because the labor market remains solid, despite the slowdown in economic activity caused by the US central bank (Fed) with a view to curbing inflation.
Job creation, on the other hand, disappointed, with only 187,000 jobs created, when analysts were expecting 200,000, according to the Market Watch consensus. Those for May and June were revised downwards, with a total of 49,000 fewer jobs than initially announced.
“Jobs were created in health services, social assistance, financial activities and wholesale trade,” detailed the Department of Labor.
These figures satisfied Wall Street, which opened higher on Friday morning.
From “hot” to “hot”
Despite this, the labor market, which has been facing a significant labor shortage for two years, remains tense.
“The labor market, which was booming, has slipped a few notches and is now booming,” said Robert Frick, an economist at Navy Federal Credit Union.
And “it could continue like this for months given the lack of employment in key sectors that continue to generate additional jobs, including health services and government,” he estimates.
This should not be enough to convince the Federal Reserve that a lasting decline in inflation is coming, said Rubeela Farooqi, chief economist at High Frequency Economics.
He stresses that institution officials “will want to see additional evidence of a decline in employment growth, wages and inflation to more sustainable levels.”
Because as long as employers can’t find enough staff, wages will continue to rise. It is true that the growth rate has already slowed considerably, but not yet enough to stop fueling inflation.
There continues to be a strong increase in wages
Thus, in July, the increase in wages showed no signs of slowing down compared to June and remained at 4.4% year-on-year, detailed the Department of Labor.
“Reflecting tensions in the labor market, average hourly wages continue to increase at a sustained rate (…), well above the pre-COVID rate of 3% to 3.5%,” he stressed in a note from Kathy Bostjancic, chief economist at the National Insurance Company.
“This is not compatible with a 2% inflation rate,” which the Federal Reserve aspires to, he adds, recalling that the president of the Fed, Jerome Powell, “has stressed that the growth rate of wages is expected to slow down to around 3.5%.”
Inflation has certainly fallen significantly since its peak last summer, and was 3.0% year-on-year in June, according to the CPI index, with July figures due to be released on August 10.
This figure is still too high for the taste of the Federal Reserve, which is aiming for 2.0%.
Thus, the Federal Reserve has raised its rates 11 times since March 2022, to make credit even more expensive and thus discourage consumption and investment.
An economic deterioration is still expected for the end of the year and the beginning of the following year. However, it now seems possible to escape the recession, which until recently seemed inevitable.
The manufacturing sector, in particular, has been struggling for several months.
