Weekly Update - The US labour market cooling down, but still hot
Along with the inflation report due next Wednesday, the US employment report published last week was one of the last key data items before the e 20th September FOMC meeting. The report confirmed the trend observed recently: the US labour market is cooling down but remain tight. This should encourage the Fed to end its tightening cycle but maintain a restrictive stance.
Slowdown in job creation. After exceeding an average of 600,000 in 2021 and 400,000 in 2022, monthly job creations have slowed further since the start of the year, reaching 187,000 in August (150,000 on average for the last three months). The healthcare and leisure sectors have remained the main contributors to job growth, while the transport and technology sectors have continued to weaken. Overall, these employment growth figures remain historically high and above the natural increase in the labour force. In a nutshell, job creations remain strong but are undeniably showing signs of moderation.
Unemployment rate at its highest since the Fed began raising rates... The unemployment rate has risen to 3.7% - its highest level since early 2022. This is purely the result of an increase in the labour force - a continuation of the post-pandemic normalisation. But, at least optically, the rise in the unemployment rate is a positive sign for the Fed in its fight against inflation, with the unemployment rate moving closer to the Fed's long-run projection of 4%.
Job vacancies per unemployed person halved. The number of job vacancies per unemployed person has been falling steadily since reaching a record level at the end of the pandemic. The vacancy/unemployed ratio now stands at 1.8, compared with a peak of 3.6 at the beginning of 2022. In other words, there are now just under two job vacancies for every unemployed person - still a high figure by historical standards, but only half as high as at the start of the Fed's rate-tightening cycle. In addition, the number of people working part-time for economic reasons (i.e. involuntarily) has risen slightly over the last six months.
Moderation in wage growth. After peaking at just under 6% in March 2022, wage growth gradually slowed to 4.3% yoy in August, with a faster deceleration in the service sector.
A Fed pause in September that could last
Against this backdrop of easing tensions on the labour market and slowing wage growth, the Fed looks likely to take another pause at its September meeting, which could well mark the end of its rate hike cycle. However, with the US economy still on a solid trajectory, the Fed should continue to signal that rates will remain high for longer.
Regarding the main economic data and events of the week, we decided to talk about the OPEC+ production cuts and the ISM PMI services for the United States.
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