Labor market shows signs of slowing amid rising rates
NEW YORK (AP) — The jobs market appears to have lost some of its sizzle, a development that could influence Federal Reserve policy and spark more concerns about an economic recession among investors.
Job postings have fallen slightly since April as rising inflation has tightened its grip on businesses and dampened consumer spending. In June, openings fell to 10.7 million, their lowest levels since September. Openings are still at an all-time high, having never topped 8 million in a month before a year ago.
On Friday, the Labor Department releases its hiring report for July. Economists expect the report to show employers hired 250,000 workers last month. That would be down from the 372,000 jobs created in June and the smallest increase this year. The unemployment rate should remain at 3.6%.
The Fed has aggressively raised interest rates in an effort to slow the economy and calm the highest inflation in four decades. The central bank raised its short-term policy rate to the highest since 2018.
One of Wall Street’s main concerns is that the Fed’s rate hikes could be too aggressive and push the economy into a recession. Those worries weighed on equities in the first half of the year, but the market rallied in July as investors bet the Fed could soon slow the pace of rate hikes.
The labor market remained strong despite the grip of inflation on the wider economy, with job vacancies far outstripping those looking for work. A tighter labor market could be a signal that the economy is slowing down enough for the Fed to be less aggressive. It would also be a sign that inflation itself, in particular that of wages, could ease.
“We need fewer vacancies, which reduces the chances of talent bidding wars and we’re starting to see that,” said Jeff Buchbinder, equity strategist for LPL Financial.
However, the labor market was strong, helping to counter fears that the economy was already in recession. The economy has contracted for two straight quarters, which is a long-standing informal definition of a recession, as spending declines. Economists and analysts said strong employment helped prevent the economy as a whole from sliding into a recession, or at least slipping into a long recession with a deep impact.
“What we have right now doesn’t look like (a recession),” Fed Chairman Jerome Powell said after the central bank’s last policy meeting in July. “And the real reason is that the labor market just sends such a signal of economic strength that it really makes you question the GDP data.”