Will key interest rates rise sharply this month, pushing the US closer to recession? Perhaps if the economy records a significant increase in new jobs in February.
Here’s what to watch in the US jobs report due Friday morning.
The economy likely added 225,000 jobs in February, according to economists surveyed by The Wall Street Journal.
While such an increase has been historically strong, it would slow significantly from the first reported surge of 517,000 jobs in January.
Federal agency response
The Federal Reserve has been wary of a strong January jobs report and other signs that the economy may actually be gaining strength in early 2023. The central bank wants the labor market and the broader economy to cool down a bit to help the Federal Reserve run rampant inflation. under control.
Economists say a much larger increase in new jobs (say, 300,000 or more) would raise concerns for the Fed.
Such a rise could even sway the Federal Reserve to raise the benchmark short-term interest rate by half a percentage point when it convenes senior officials in Washington in the next two weeks.
Until recently, Wall Street expected a more gradual 0.5 percentage point rate hike.
High borrowing costs slow the economy, and the higher the borrowing costs to keep inflation down, the more likely the US is to slip into recession.
The unemployment rate for Americans fell to 3.4% in January, the lowest level in 54 years.
Economists expect the unemployment rate to remain at 3.4%. If it falls further, the unemployment rate will reach its lowest level since 1953. It would also sound alarm bells for the Fed.
rapid wage growth
Workers’ wages have risen sharply over the past few years as companies had to compete for workers at a time of severe labor shortages.
The Federal Reserve is concerned that higher wages could trigger a terrifying “wage-price” spiral, making it harder to maintain upward price pressure and control inflation.
Average hourly wages are forecast to rise by 0.4% in February. This pushes his increase from 4.4% the previous month to his 4.8% over the past year.
The central bank wants annual wage growth to return to its pre-pandemic level of 2% to 3% annually. Annual wage growth has peaked at his 40-year high of 5.9% in March 2022.
jobs wild card
a few economists tTake January’s reported increase of 517,000 new jobs at face value.
For one thing, the government introduced a new seasonal adjustment almost every year, which may have exaggerated the increase in employment.
The weather is also unseasonably warm, which could help boost reported job growth in industries such as construction, retail, leisure and hospitality.
In fact, relatively mild winter weather in February could do the same and help produce a stronger-than-expected jobs report.
Finally, preliminary government surveys of job growth show high volatility due to low response rates.
Take January. Only 44% of businesses responded to the government employment survey on time, compared to 60% in January 2020. Poor responses can lead to exaggerated increases or decreases in employment.
Richard Moody, chief economist at Regions Financial, said: “The low response rate to the BLS’s survey of establishments made initial estimates of employment growth in a given month less reliable than usual.
Most companies surveyed eventually provide monthly employment level updates, which can significantly revise previous data.
Wall Street and Fed economists are watching closely to see if January’s surge of 517,000 jobs will be down significantly.
The size of the Federal Reserve’s next rate hike could depend on it.
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