Friday, May 24, 2024

What To Expect From This Week’s U.S. Labor Market Reports

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Key Takeaways

  • Labor market reports due this week will show whether employers are still in hiring mode and keeping jobs plentiful.
  • The job market staying hot could discourage officials at the Federal Reserve from cutting their benchmark interest rate as they have planned, for fear of stoking inflation due to high wages.
  • Economists are also watching for signs of increasing layoffs as high interest rates make it harder for businesses to borrow the money they need to stay staffed up.

A pair of reports on the job market this week could shed light on whether the U.S. economy is losing steam or chugging along.

Friday’s report on jobs from the Bureau of Labor Statistics (BLS) is expected to show that U.S. employers added 198,000 jobs in February, according to a survey of forecasters by Dow Jones Newswires and the Wall Street Journal. That would be fewer than the 353,000 added in January, suggesting that employers are growing more reluctant to expand their payrolls as the Federal Reserve’s high interest rates continue to drag on the economy.

Expectations are one thing though, and reality is another: Job growth surpassed forecasters’ expectations in the prior month. Another surprisingly hot jobs report could prompt officials at the Federal Reserve to keep the central bank’s benchmark interest rate higher for longer.

Fed officials have worried that rapid raises could fuel a cycle of pay and price hikes, threatening their goal of pushing inflation down to an annual rate of 2%. Employees are somewhat less in demand than they were last year, but pay raises have gotten smaller, a trend that the Fed would like to see continue.

“This week’s employment data will be an important progress report with respect to easing of labor market tightness,” economists at Deutsche Bank said in a research note. “Should progress on labor market rebalancing appear to be stalling out or reversing, market participants may increasingly question whether the Fed may cut at all this year.” 

On the other hand, Friday’s closely watched release, often referred to as the nonfarm payrolls report, could show that the job market is weakening, increasing the chances that the economy could fall into a long-awaited recession. That could push the Fed to cut interest rates sooner to stimulate the economy and stave off an impending downturn. Some economists see warning signs that an uptick in layoffs is on the way, including a recent increase in Google searches for how to claim unemployment benefits. 

“The message coming from employers and employees is consistent; more layoffs are coming,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a research note.

Shepherdson said high interest rates are making it harder for businesses to borrow money.

“It’s easy to understand why businesses are taking a more aggressive approach to hiring and firing,” he wrote. “Working capital is now extremely expensive.”

In addition to the nonfarm payrolls report, economists will get a batch of other labor-related data to chew over, including the BLS’s report Wednesday on job openings and labor turnover for January. That report is expected to show there were 8.9 million job openings that month, a slight downtick from 9 million the month before, according to a survey of economists by Dow Jones Newswires and the Wall Street Journal. 

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