2023-08-04 12:50:57
(Washington) 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 drop in inflation.
The unemployment rate fell in July to 3.5%, from 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.
President Joe Biden hailed the numbers: “Unemployment at its lowest and the share of working-age Americans in jobs at a 20-year high is 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.
Job creations, on the other hand, disappointed, with only 187,000 jobs created, when analysts expected 200,000, according to the Market Watch consensus. Those for May and June have been revised downwards, with a total of 49,000 fewer jobs than initially announced.
“Jobs have been created in health services, social assistance, financial activities and wholesale trade,” detailed the Department of Labor.
These figures satisfied Wall Street, which opened higher on Friday morning. Around 10 a.m., the Dow Jones rose 0.34%, the NASDAQ index gained 0.34% and the broader S&P 500 index gained 0.29%.
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 that continue to generate additional positions, including health services and government,” he said.
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 officials at the institution “will want to see further evidence of an easing in job growth, wages and inflation 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 4.4% over one year, detailed the Department of Labor.
“Reflecting tight labor market conditions, average hourly wages continue to rise at a strong pace, […]well above the pre-COVID-19 rate of 3% to 3.5%,” said Kathy Bostjancic, chief economist at Nationwide Insurance Company, in a note.
“This is not compatible with an inflation rate of 2%”, which the Fed is aiming for, she adds, recalling that the chairman of the Fed, Jerome Powell, “stressed that the growth rate of wages should 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 10 August.
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.
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