Valley of St-Imier

The labor market remained very solid in May in the United States, with much more job creation than expected and a historically low unemployment rate, while wage growth slowed, good news for the fight against inflation.

In May, 339,000 jobs were created in the United States, announced Friday the Department of Labor, when only 190,000 were expected, according to the consensus of MarketWatch.

Jobs have been created in particular in the professional and business services sectors, in government-related jobs, health care, construction, transport and logistics and social assistance, details the Department of Labor.

In addition, job creations for March and April have been revised upwards to 217,000 and 294,000 respectively, ie over these two months 93,000 more jobs were created than initially announced.

The unemployment rate, on the other hand, rose a little more than expected, standing at 3.7% (+0.3 points), when analysts had forecast 3.5%. It has been at its highest since October 2007 but remains very low.

‘Job growth continues at a rapid pace, but wage pressures are not keeping pace’, notes Rubeela Farooqi, chief economist for HFE, noting that the rise in the average hourly wage ‘has slowed’.

This increase in wages, in fact, led the American central bank (Fed), which is maneuvering to slow down high inflation in the United States, to take a particular interest in the employment situation.

Shortage of employees and raised wages

Retirements during the pandemic, childcare difficulties, but also very low immigration, have, for more than two years, led to a shortage of workers.

This prompted employers to raise wages to attract applicants and retain staff, which helped to drive up inflation.

The rate of participation in the labor market remains stable, however, at 62.6%, details the Department of Labor.

In the private sector alone, job creation slowed down a little in May, but remains at a high level, with wide disparities between sectors, according to the monthly ADP/Stanford Lab survey published on Thursday.

And these data also showed a much weaker increase in wages: “wage-induced inflation could be less of a concern for the economy despite robust hiring,” said Nela Richardson, chief economist of ADP, quoted in the communicated.

Since March 2022, to achieve its objective, the Fed has raised its key rates. This leads the banks to raise the cost of the loans they offer to households and companies, to slow down consumption and investment, and ultimately to ease the pressure on prices.

At its next meeting on June 13-14, it could choose to raise rates for an 11th consecutive time, or pause to observe the effects of previous hikes and avoid dragging economic activity too far, to avoid recession.

Immigration

Philadelphia Fed President Patrick Harker stressed on Thursday that “there must also be a sensible immigration policy to bring the people we need into the country”.

‘We just have to recognize that there are only two solutions to get more people into the labor market, get more people back (into employment) who were on the sidelines, or get more people in the country,” he told a NABE (National association for business economics) conference.

However, the job market seems to be showing signs of slowing down.

Thus, weekly jobless claims recorded a second week of increase in a row at the end of May, according to figures from the Labor Department.

And, while employers still have ‘difficulty finding workers across a wide range of skill levels and economic sectors’, they are seeing ‘easier hiring in construction, transportation and finance’, according to this ‘Beige Book’ (Beige Book), an activity barometer published on Wednesday by the Fed.

/ATS

Now at its lowest level for two years, inflation slowed slightly in April in the United States, but remains very high and is even accelerating in places, at a time when the American central bank is considering stopping raising its rates.

Consumer prices rose 4.9% year on year in April, compared to 5.0% in March, according to the CPI index published on Wednesday by the Labor Department, and on which pensions are indexed.

This is better than expected, since analysts expected prices to rise identical to last month, according to MarketWatch consensus.

But, over one month only, inflation accelerated again, as expected by analysts, to 0.4% against 0.1% in March.

Housing, second-hand cars and gasoline at the pump still experiencing strong increases, details the Department of Labor in its press release.

This is bad news for President Joe Biden, who is seeking a second term in 2024. He is currently battling Republican opposition to try to find a deal and raise the debt ceiling, in order to avoid a debt default. United States, the consequences of which could be catastrophic for the world economy.

These figures will surely weigh heavily on the balance of the US central bank (Fed), which plans to pause rate hikes, at its next meeting in a month.

A further rise in rates would further complicate and increase the cost of access to credit for consumers. Especially since the recent banking crisis has made banks hesitant to grant loans to households and businesses.

‘Generalized’ inflation

Inflation, which had nevertheless slowed in recent months in the United States, has certainly fallen by almost half since last summer. But it is still far too high.

A governor of the Fed, Lisa Cook, had even warned, at the end of April, of inflation “generalized in the economy” in the United States.

The heavy task of bringing inflation back on track falls to the Fed. And its leaders constantly remind us of the serious consequences for the economy as a whole of a sharp and persistent rise in prices.

“High inflation is harder on those who can least afford to pay higher prices for food, housing and transportation,” John Williams, chairman of the Fed’s New York branch, said on Tuesday. .

The institution’s latest action: a quarter-point rate hike on May 3, at the end of its last meeting, in the hope of curbing the American consumption frenzy a little, and thus bringing back prices rise to the level targeted by the Fed.

The recent banking crisis came to provide unexpected support to the central bank by restricting access to credit, which acts as a rate hike.

The Fed wants to bring inflation down to 2.00% per year, a level considered healthy for the economy. Instead of the CPI index, it favors another measure of inflation, the PCE index, whose data for April will be published at the end of May. According to him, inflation had slowed in March to 4.2% over one year, against 5.1% the previous month.

US growth slowed sharply in the first quarter, with gross domestic product up 1.1% at an annualized rate, compared to 2.6% in the fourth quarter of 2022.

And on the job side, the ball remains in the workers’ court, although employers have regained some leeway after more than two years of labor shortages.

While the labor market is expected to slow down, going hand in hand with the economic slowdown, 235,000 jobs were still created in April, much more than expected, and the unemployment rate fell to 3.4 %. Wages continued to rise, although a little more slowly.

/ATS