US job market shows signs of weakening, boosting hopes for rate cuts

The rate of job growth moderated in June while May figures were revised downward — a trend that Wall Street analysts view as a positive sign that the Federal Reserve will slash interest rates later this year.

Nonfarm payrolls rose by 206,000 jobs in June – ahead of the 190,000 jobs economists expected but below the growth rate seen in previous months this year, the Labor Department said on Friday.

The feds also revised May jobs figures from the reported 272,000 jobs down to 218,000. For April, the government also revised the job figures downward — from the initial 165,000 to 108,000.

The signs of a weakening job market boosted investors’ hopes for rate cuts, although stocks were little changed in early trading.

The unemployment rate ticked up to 4.1%, slightly ahead of economists’ predictions for a 4% increase.

Neil Dutta, an analyst at Renaissance Macro Research, urged the Fed to “get on with” slashing interest rates.

US inflation cooling, job market similar to pre-pandemic conditions, Fed says

“Today’s employment report ought to firm up expectations of a September rate cut,” Dutta told Bloomberg News. “Economic conditions are cooling and that makes the trade-offs different for the Fed.”

Investors have been hoping for news that would encourage the Federal Reserve to slash interest rates in its drive to fully tame inflation.

From the Fed’s perspective, a deceleration in hiring to a still-decent pace would be just about ideal.

It would suggest that the job market is slowing enough to ease pressure on employers to sharply raise pay, which could feed inflation , yet not so much as to cause waves of layoffs.

That said, economists been repeatedly predicting that the job market would lose momentum in the face of high interest rates engineered by the Fed , only to see the hiring gains show unexpected strength.

“The labor market has really proven the doubters wrong,’’ said Andrew Flowers, chief economist at Appcast, which uses technology to help companies recruit workers.

Still, Flowers suggested, the much higher borrowing costs caused by the Fed’s rate hikes will eventually weaken the job market.

Labor market continues to cool as applications for unemployment benefits rise

“Eventually,” he said, “it’s going to bend, but not break. The slow bite of high interest rates is going to moderate job growth.’’

Already, there are signs of an economic slowdown. The US gross domestic product — the total output of goods and services — grew at a lethargic annual pace of 1.4% from January through March, the slowest quarterly pace in nearly two years.

Consumer spending, which accounts for about 70% of all US economic activity and which has powered the expansion the past three years, rose at just a 1.5% pace last quarter after growing more than 3% in each of the previous two quarters.

In addition, the number of advertised job openings has declined steadily since peaking at a record 12.2 million in March 2022.

Still, while employers might not be hiring so aggressively after having struggled to fill jobs the past two years, they aren’t cutting many, either. Most workers are enjoying an unusual level of job security.

“Businesses are hiring less amid cooler demand conditions,” said Bill Adams, chief economist at Comerica Bank.

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“But they are also laying off fewer workers than before the pandemic. The job market is tight, so businesses don’t want to cut headcount today only to realize they need more workers tomorrow and then struggle to find them.”

During 2022 and 2023, the Fed raised its benchmark interest rate 11 times to try to conquer the worst streak of inflation in four decades, lifting its key rate to its highest point in 23 years.

The punishingly higher borrowing rates that resulted, for consumers and businesses, were widely expected to trigger a recession. They didn’t.

The economy and the job market instead have shown surprising resilience.

Meanwhile, inflation has steadily declined from a 9.1% peak in 2022 to 3.3%.

In remarks this week at a conference in Portugal, Fed Chair Jerome Powell noted that price increases in the United States were slowing again after higher readings earlier this year.

But, he cautioned, further evidence that inflation is moving toward the Fed’s 2% target level would be needed before the policymakers would cut rates.

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