the job market eased a bit in July, not enough to keep up with inflation

2023-08-05 14:32:00

The job market remained tight in July in the United States and even weaker than expected job creations were not enough to slow wage growth, a necessary condition for a lasting fall in inflation. .

Debt: Fitch downgrades US sovereign rating from precious AAA to AA+

In detail, the unemployment rate fell, falling in July to 3.5%, once morest 3.6% the previous month, the Labor Department announced on Friday. It thus remains in the historically low range of 3.4 to 3.7% in which it has been evolving for a year and a half. But job creations were fewer than expected, at 187,000 when analysts were expecting 200,000, according to Market Watch’s consensus. Those of May and June have been revised downwards, with a total of 49,000 jobs less than initially announced.

« These latest figures show that the Fed’s efforts to tighten monetary policy are paying off in slowing the labor market “, Estimated Benjamin Trevis, analyst of CEBR.

President Joe Biden welcomed these figures: “ Unemployment rate at lowest and share of working-age Americans in jobs at 20-year high: These are the Bidenomics “, That is to say its economic policy, he underlined in a press release.

Because the labor market remains solid, despite the slowdown in economic activity caused by the American central bank (Fed) in order to slow down inflation.

« Jobs have been created in health services, social assistance, financial activities and wholesale trade “, detailed the Department of Labor.

From “scorching” to “hot”

Despite this, the job market, which has been facing a major labor shortage for two years, remains tight.

« The labor market, which was hot, has lost a few degrees, and is now hot commented Robert Frick, economist for Navy Federal Credit Union. And ” it might stay that way for months given the lack of jobs in key sectors which continue to generate additional positions, including health services and government “, he believes.

That shouldn’t be enough to convince the Fed that a sustained decline in inflation is on the way, said Rubeela Farooqi, chief economist for High Frequency Economics.

She points out that the heads of the institution “ will want to see further evidence that job growth, wages and inflation are easing to more sustainable levels ».

Because as long as employers will not find enough staff, salaries will continue to rise. The pace of growth has certainly already slowed down, but not yet enough to stop fueling inflation.

Still strong increase in wages

Thus, in July, the rise in wages showed no sign of slowing down compared to June, and remained at 4.4% over one year, detailed the Department of Labor.

“Reflecting the tightness in the labor market, average hourly wages continue to increase at a robust pace, (…), well above the pre-Covid pace of 3% to 3.5%”, underlined in a note Kathy Bostjancic, chief economist of the Nationwide insurance company.

« This is not compatible with an inflation rate of 2% “, which the Fed is aiming for, she adds, recalling that Fed Chairman Jerome Powell, “ pointed out that the wage growth rate is expected to slow to around 3.5% ».

Inflation has certainly fallen since its peak last summer, and was 3.0% over one year in June, according to the CPI index, whose July figures will be published on August 10. This remains too high for the taste of the Fed, which is aiming for 2.0%.

The Fed has raised its rates 11 times since March 2022, to make credit ever 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. Nevertheless, it now seems possible to escape the recession, which seemed unavoidable until recently. The manufacturing sector, in particular, has been struggling for several months.

In Canada, the unemployment rate continues to rise

Separately, in Canada, the jobless rate continued to rise for a third straight month to 5.5% in July as the economy struggles to create enough jobs to keep up with population growth, Statistics Canada reported. Friday.

Even if it remains close to its historical low of 5%, it is the first time that the unemployment rate has increased over three consecutive monthly payments since the start of the COVID-19 pandemic, underlines the government institute. At the same time, the Canadian economy lost only 6,000 jobs (-0.0%) following an average monthly increase of 22,000 jobs since January.

Considering the ” historically high population growth These data suggest that the labor market is not managing to create enough jobs to absorb a rapidly expanding labor force, underlines Carrie Freestone of the RBC bank.

The construction (-45,000), public administration (-17,000) and information, culture and leisure (-16,000) sectors mainly contributed to this slight decline. It was offset by the health care and social assistance sector (+25,000), where demand remains particularly strong. The number of vacancies has thus decreased by 12,500 (-8.5%), notes the institute.

“The mere fact that the economy has experienced a decline in employment in two of the last three months suggests that the Bank of Canada’s efforts to rebalance the labor market are bearing fruit,” notes the analyst of the Desjardins Bank, Royce Mendes.

For analysts, these results reinforce the idea that the Canadian central bank has finished raising rates for this cycle.

The latter had raised its main key rate by 0.25 points in early July to 5%, its highest level in 22 years, due to an increase in demand which continues to fuel inflation. As for the hourly wage, a crucial indicator for the central bank, it increased (+5%) for both men and women to reach 33.24 Canadian dollars (22.57 euros).

United States: surprise rebound in growth in the second quarter, to 2.4%