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Jobs report expected to overheat, which could lead to aggressive Fed

People walk into a store in a busy shopping district in Manhattan, New York City, December 10, 2021.

Spencer Pratt | Getty Images

August employment growth may have slowed from July’s blistering pace, but it is still expected to remain very strong with broad-based hiring across many sectors.

Monthly employment data is always important, but labor market conditions will be a key consideration in the Federal Reserve’s next interest rate decision later this month, so the August is particularly important.

The economy is expected to add 318,000 jobs in August, according to Dow Jones, less than the surprisingly strong 528,000 jobs added in July.The unemployment rate is expected to stabilize at 3.5% However, average hourly wages are expected to rise by 0.4%, or 5.3% on an annualized basis.

“Market participants view that the jobs report is more important than the CPI inflation report in determining whether a rate hike of 75 basis points or more in September is more appropriate than a 50 basis point hike, and that is correct. I think it’s the way you look at it,” he said. Bank of America Chief U.S. Economist Michael Gappen said:

The other key data central bankers will consider at their September 20th and 21st meetings is the August CPI, which was released on September 13th. CPI, although high, is expected to be lower than his 8.5% pace in July due to lower gas prices.

Stocks fell on fears of inflation and rising interest rates ahead of this week’s nonfarm payrolls report. Strategists say the jobs report could be perceived as a “bad news is good news” type of report. Strong numbers could trigger more selling and higher bond yields as investors assume the Fed will be more aggressive with rate hikes.

“Weak numbers will lead to higher bonds,” said Peter Bookver, chief investment officer at Blakely Advisory Group. “It will lead to a weaker dollar and a rebound in stocks of relief, but I don’t know how long that will last because buying stocks in the teeth of a recession wasn’t a great strategy. I think. It’s going to be a recession for some, maybe not for others.

Fed Chairman Jerome Powell surprised markets last week when he stressed that the Fed has promised to fight inflation by raising interest rates and has no intention of lowering them. Many market experts expected the Fed to back out of some rate hikes next year.

Powell used Jackson Hole speech to bluntly warn economy and labor market are likely to feel ‘pain’ as Fed uses rate hikes to keep inflation in check Did. Investors are debating whether the Fed will use his September meeting to implement his third rate hike of 3/4 of a percentage point, or he will revert to half a percentage point.

On Wednesday, Cleveland Fed President Loretta Mester, a voting member of the Federal Reserve’s policy-setting committee, said the central bank would raise key lending rates above 4% by early 2023 and said that it should be maintained.

Federal Reserve Focus

Diane Swonk, chief economist at KPMG, said: “The state of the labor market has been a focal point for the Fed.” So it means the same thing: pain in the labor market is raising the unemployment rate.”

Mr Swonk said a lot of weight was put on the August jobs report, but it’s a month before economists expect the government’s monthly salary data to be misleading.

“August is subject to the biggest revision as salary survey response rates tend to be lower than any other month of the year,” she said. It’s a high number that you have to accept with a little salt.”

Swonk said small business employment has probably been hit harder by the pinch of inflation and higher interest rates than big companies. We anticipate that there may be some degree of ‘hoarding’ of labor to retain workers rather than to keep them.

Leisure and hospitality, for example, are already understaffed for the summer holiday season, so we may not see a typical late-summer recession, she added.

Negative by early next year

Both Swonk and Gapen expect the job market to start posting negative monthly numbers by early next year as the Federal Reserve’s tightening hits the labor market.

Yet, so far, the job market has remained remarkably resilient. The Bureau of Labor Statistics this week reported a staggering 11.2 million job openings in July, one million more than expected.

Tom Gimbel, founder of recruitment firm LaSalle Networks, said he didn’t see a slowdown in the economy, despite the high profile job cuts in the tech sector.

“We’re seeing a big uptick in technology…it’s continuing to grow. The biggest numbers tend to be in cybersecurity. Job openings are up 20% year-over-year,” he said. I was. “In project management he sees a 15% increase. Companies are still doing special projects in the technical field.”

“We got another message from Jackson Hole: The Fed is serious and trying to keep inflation under control. The labor market is clearly out of balance,” Gappen said. “The stronger it is overall, the more the Fed will tighten,” he said.

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