The American job market is easing, enough for the Fed?

The American job market is easing, enough for the Fed?
The American job market is easing, enough for the Fed?

Unemployment claims in the United States rebounded this week to 231,000, the highest figure since August 2023. In recent months, the figures have varied more in the 200,000/220,000 zone, so this is the first time that we have gone back beyond 230,000 for several months.

Added to this observation is the decline in the number of jobs available in the United States, which can be measured using JOLTS figures. The latest publication came out at 8.49 million, the lowest since February 2021. It should be remembered that before the Covid crisis, JOLTS were hovering a little above 7 million. Then the figure soared to more than 12 million in March 2022, a sign of very strong tension in the labor market with millions of jobs which could not find takers with employers obliged to significantly increase salaries.

The return to 8.49 million shows a gradual normalization of this job market. And that may be what we saw in the last jobs report. Wage growth slowed to 3.9%, the “lowest” progression observed since June 2021 and after hovering around 6% in March 2022. If we look at wage growth before the Covid crisis, in 2018 and In 2019, for example, salary growth varied between 3% and 3.6%. We therefore find levels more acceptable for the Fed.

The unemployment rate rose slightly to 3.9% in April compared to 3.8% the previous month and for the record, it rose to 3.4% in April 2023. Finally, non-agricultural job creation fell to 175,000, the “lowest » level observed since October, after 315,000 in March.

Signs of a gradual easing of the job market are therefore appearing in the United States. But for the Fed to be able to restart its rhetoric on rate cuts, inflation must follow the easing of employment. The Fed must judge the progress on the employment AND inflation fronts sufficient to initiate the first rate cut. The publication of CPI inflation figures on Wednesday is therefore eagerly awaited by the Fed and the markets.

Despite this easing on employment, Fed members remain very cautious in their comments. For Neel Kashkari, the employment report is “weaker than expected but it is not weak”, adding that “the most likely scenario is that we keep rates in place for an extended period of time”. Same story for Mary Daly who explains that there is a difference between a “softer” job market and a “weakening” job market.

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