June jobs report suggests Fed may avoid recession – but room for error is minimal :: InvestMacro

by Christopher DeckerAnd the University of Nebraska Omaha

US economy Added more jobs than expected In June, a sign that the labor market remains strong even as the Federal Reserve tries to weaken it to tame inflation. The July 8, 2022, Jobs Report It also showed the unemployment rate It stayed at its lowest level in 70 years 3.6%.

Does this mean that the United States will avoid a Recession caused by the Fed?

we asked Christopher Deckeran economist at the University of Nebraska Omaha, to explain the numbers and what they mean for the Federal Reserve and the economy.

What did we learn in the June jobs report?

The report showed that the economy added 372,000 jobs in June. While that number is down from the revised increase of 384,000 in May and is well below other recent gains, it is Still very good by historical standards.

Gains were across the board with all major sectors adding to the total increase in non-farm payrolls.

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In general, people are still drawn back into the workforce, largely due to rising wages as well as rising costs of living, which make it difficult for families to live without a steady income stream. For example, the number of part-time workers for economic reasons decreased by 707,000 in June. This seems to indicate that there is a growing desire and ability to secure a full-time job with higher and more stable salaries.

The Female labor force participation rate decreased slightly to 56.8% — more than a percentage point lower than it was before the COVID-19 pandemic. This figure is worth watching closely and may be due to women being reluctant or wanting to return to the workforce Struggling to find child care.

Does this mean that there will be no recession?

This is the big question.

June’s gains were solid, but the labor market is clearly calming down. There is evidence of The broader economy is weakening Two signs for the Federal Reserve Recent aggressive efforts To reduce inflation by stifling growth.

The housing market is a case in point. Average Mortgage Rates for 30 Years to its highest level in 13 years 5.8% in June after the Fed raised interest rates by 0.75 percentage points Chilling on home purchases.

And now we’re seeing the impact on residential construction jobs, which Dropped for the first time in a year As rising borrowing costs dampened demand. I’d like to look at this sector more closely to help determine if what the Fed is doing is taking hold in the economy.

In addition, in May, retail sales unexpectedly rejected A forward-looking economic indicator It decreased for the second month in a row Both are signs of a slowing economy.

Can stagnation be avoided?

It may seem strange for the US central bank to actually try to harm economic growth, but it just shows how important it is for policymakers to believe it is important to fight high inflation, which is It is currently the highest in more than 40 years.

The problem of rising prices is a major concern for the Federal Reserve, as it is a problem The main element of her “dual mandate” To control inflation and maintain healthy job growth.

hyperinflation Cancerous for any economy. When price growth exceeds income growth, consumers have to rein in spending. Production decreased and people lost their jobs. The only way for the Federal Reserve to reduce inflation is to curb demand by reducing the money supply and increasing interest rates. This, however, also limits economic growth. So the Fed is trying to manage a “soft landing” – which means lowering inflation without hurting growth so much that it causes a recession.

There are some early signs of the Fed’s success. The economy is slowing, although the June jobs show fundamental strength in the labor market. At the same time, inflation also appears to be declining, thanks in part to Decreased global demand for oil. Gasoline prices in the US – the most obvious price consumers see every day – have fallen in recent weeks after that Peaked at a record high of $5 in June.

But implementing a soft landing is a delicate dance for the Fed. A central bank can reduce the demand for things through interest rates, but it can’t do much about supply. The main cause of energy and food costs It has risen in recent months Not high demand but The war in Ukraine.

Sanctions on Russiathe scientist The second largest exporter of crude oilAnd the Drop shipments from Russia To parts of Europe, it disrupted energy markets and raised global oil prices.

and Ukraine, a The main producer of food and other agricultural commoditiesstruggling to export corn, wheat and other products because Russia Blocks the main ports.

Continued shortages of energy and food mean that inflation could remain high no matter what the Fed does. This could result in the Fed having to raise interest rates a lot and cut growth significantly to have a significant impact on price hikes.

This makes the current Fed dance the most delicate he has tried Since the eightiesIt must be executed flawlessly in order to succeed. The June jobs report is good news, but the economy is not out of danger yet. Data in August and September will be crucial to knowing which direction the economy is headed – toward a recession or not.Conversation

About the author:

Christopher Deckerprofessor of economics, University of Nebraska Omaha

This article has been republished from Conversation Under a Creative Commons License. Read the original article.

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