The number of jobs added to the American economy in August stands at 142 thousand – lower than expected. The unemployment rate is 4.2%.
The expectation was for the addition of 161 thousand jobs and a slight decrease in the unemployment rate from 4.3% to 4.2%. Last month there was a surprising jump in unemployment, and the response was sharp declines in the markets and increased fear of an impending recession.
Despite the high interest rate in the American economy, which stands at 5.5% – the highest rate in 23 years – the employment market remained stable during 2023. Unemployment levels were low, and even fell below the levels seen before the corona epidemic. At the same time, the number of vacancies almost did not decrease, showing only a slight moderation. However, the latest data indicate an increase in unemployment levels and a decrease in the demand for workers, which indicates the beginning of cooling in the labor market, which now ceases to be a major inflationary factor.
inflationary pressures
As far as the Fed is concerned, in recent years a tight labor market has created pressures for wage increases, which led to an increase in demand and contributed to an increase in inflation. The service components, which continued to rise even after inflation in other components calmed down, posed a major challenge. Now, the labor market is showing signs of cooling, and the fear of wage pressures has diminished.
At the Jackson Hole conference last month, the chairman of the Fed, Jerome Powell, stated that the market has cooled sufficiently, and that the bank’s executives are not interested in further cooling. On the contrary, Powell emphasized that “we are not interested in further expansion of the employment market”, adding that the labor market It no longer constitutes a significant inflationary pressure. Now, instead of focusing on moderating price increases, the Federal Bank prefers to focus on maintaining full employment as much as possible.
What will the Fed do?
The Job Vacancies Report (JOLTS) published on Wednesday indicated a further decrease in the number of vacancies, which reinforces the feeling of cooling in the labor market. However, the former president of the Fed in New York, Bill Dudley, estimates a 50%-60% chance of a recession in the coming year.
In light of the disappointing data, the Fed may take more aggressive steps, and even reduce the interest rate by half a percent in the upcoming decision – a move that the markets attribute to a 40% probability.
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