June 7 :
It is anticipated that US employment growth remained moderate in May, with wage gains being stable as well. As a result, the Federal Reserve is predicted to remain in a wait-and-see attitude about interest rates. However, this could lead to predictions that the central bank will decrease borrowing costs at least once this year.
Expectations are high that the unemployment rate will stay below 4% for the 28th consecutive month in the highly anticipated June.7 employment report from the Labour Department. The Federal Reserve has been able to take its time in determining when to start decreasing interest rates due to the still-solid job market, even though it has weakened in recent months.
It is widely anticipated that next week, the US central bank will maintain the benchmark overnight interest rate in the same band of 5.25% to 5.50%, which it has remained since last July.
According to Lydia Boussour, a senior economist at EY-Parthenon, the employment report will show that the labour market isn't as robust as it was last year and is heading towards a less inflationary equilibrium. A Reuters poll of economists found that nonfarm payrolls rose by 175,000 in April and another 185,000 in May. That increase would fall short of the three-month average of 242,000.
A range of 120,000 to 258,000 was the estimated number. The Fed has raised its policy rate by 525 basis points since March 2022 in an effort to limit demand in the general economy, but the labour market has shown resiliency despite this aggressive cycle.
The 10-year US Treasury yield has been trading near its lowest level in approximately two months this week, and signs of a slowdown in hiring among small businesses have added fuel to the fire in the financial markets' anticipation of a negative miss on employment growth in June.
The US central bank is keeping a careful eye on the labour market and economic growth to make sure it doesn't keep rates too high for too long and cool the economy too much while it tries to get inflation back to its 2 percent target. Other signs point to a gradually loosening job market.
The first quarter's overall economic output growth rate was the lowest in nearly two years, and the data so far this quarter has been, on the whole, poorer than anticipated.
In the next months, as the supply and demand for workers continue to normalise, economists generally anticipate that the job market will continue to deteriorate.
Just this week, statistics revealed that the number of job opportunities fell in April, and the amount of available positions per job-seeker hit a record low, not seen since June 2021. We expect average hourly earnings to have increased 0.3% last month, following a 0.2% gain in April, and a 3.9% growth in wages for the year ending in May, tying April's increase—the lowest in three years. To achieve its inflation goal, the Federal Reserve is targeting wage growth of 3-3.5 percent.
The majority of forecasts in a Reuters poll anticipate the Federal Reserve to drop its policy rate in September and again later in 2024. However, there is a strong danger that the central bank will choose for only one cut or none at all. With no changes expected in May, the unemployment rate is expected to remain at 3.9%. Increased immigration over the last year has boosted the labour market, which may lead to faster employment growth without reviving inflationary pay pressures.
Uncertainty surrounds the extent to which slowing consumer demand, reduced profitability, and a slowdown in small businesses' hiring plans may moderate employment gains in the coming months. Paychecks and family budgets have been helped along by the employment market's surprisingly resilient performance. Senior economic analyst Mark Hamrick of Bankrate stated, "Yet, people are still agitated and financially pressured" due to rising prices and interest rates.
