Miami Beach, Florida, Normandy Isle, 7T One Venezuelan restaurant, with customers eating food and wait staff cleaning the interior.

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Friday’s jobs report may provide an important piece of the complex puzzle of the US economy and its long-awaited recession.

Wall Street forecasters expect non-farm payrolls to increase by 200,000 in July, the lowest increase since December 2020, while unemployment is forecast to hold steady at 3.6%. june saw profit of 209,000And the year-over-year total is about 1.7 million.

Although slower job growth may fit the narrative that the US is headed for a contraction, other data, such as GDPProductivity and consumer spending have been surprisingly strong lately.

That could leave payroll numbers as a key arbiter of whether the economy is headed for a recession, and if The Federal Reserve needs to keep hiking Interest rates to control inflation which is still running well above the desired target of the central bank.

“This will likely be a report that has something for everyone, whether your view is to avoid a recession altogether, have a soft landing, or be fully funded by the end of the year,” said Jeffrey Roach, chief economist at LPL Financial. Kind of bearish.” “The challenge is that not every metric is telling you the same story.”

inside the numbers

For economists like Roach, the clues to what the typically backwards-looking reports reveal about the future lie in a few understated figures: prime-age labor force participation, hours worked and average hourly earnings, and Those areas where job growth was highest.

prime-age participation rateFor one, the focus is on the 25 to 54 age group. While the overall rate has been stuck at 62.6% for the past four months and is still below its pre-pandemic level, the prime-age group has been rising steadily, if incrementally, and currently stands at 83.5%, half a percentage point Above where it was in February 2020 – just before Covid hit.

Increasing participation means more people are coming into the labor force and reducing wage pressure contribution to inflation, However, the low participation rate has also been a factor in payroll gains defying expectations, especially amid a series of Fed rate hikes aimed specifically at bringing back demand that exceeds supply in the labor market.

Economist says strong US job market could become a concern for the Fed

“The stability of this labor market is largely because we don’t have people,” said Rachel Cederberg, senior economist at job analytics firm Lightcast. “We have an aging population that we have to support much smaller groups of people — millennials, Gen X –. They don’t even come close to the baby boomers who have left the labor market.”

working hours are a factor Productivity, which unexpectedly increased by 3.7% The length of the average work week declined in the second quarter.

The jobs report will also reveal which industries are adding the most jobs. For most of his recovery, he has been in leisure and hospitality, as well as several other sectors such as health care and professional and business services.

Wages will also be a big thing. Average hourly earnings are expected to rise 0.3% for the month and 4.2% from a year ago, which would be the lowest annual increase since June 2021.

Taken together, the data will be looked to confirm that the economy is slowing enough for the Fed to begin tightening its monetary policy due to a slowing labor market, but not because the economy is in trouble.

balancing act

Tom Garrettson, senior portfolio strategist at RBC Wealth Management, said, “Payrolls will provide a litmus test for the market amid expanding economic data that shows not only a resilient U.S. economy, but one that faces new risks of overheating.” can cope.”

RBC expects payroll growth of 185,000 less than consensus as “cooling labor demand” [is] are likely to eventually reinforce rising economic soft-landing scenarios,” Garrettson said.

However, Goldman Sachs is looking for a hot number.

The firm, which is perhaps the most optimistic on Wall Street regarding the economy, is expecting summer hiring to top 250,000 due to an expected firming up.

Goldman economist Spencer Hill said, “Job growth remains strong in July when the labor market is tight — reflecting strong hiring of young summer workers — and three alternative measures of job growth signal strong momentum in job growth.” Let’s give.” a customer note.

Those measures include job data from alternative sources. Labor Department continues to count jobs, and the firm’s own employer survey. Hill said labor demand has “fallen meaningfully” from its peak a year ago but is still “elevated” by historical standards.

Indeed, Homebase data shows that small businesses are still hiring but at a slower pace. The firm’s Main Street Health report shows that the rate at which employees report to work declined 1.2% in July, while hours worked declined 0.9%. However, wage growth edged up 0.6%, indicating the Fed may still be feeling the heat, even if the top-line payrolls number softens.

The trick is to let the labor market cool but not crash, said Cederberg, a Lightcast economist.

“We want to see a slow decline from the upheaval that we’ve seen over the past few months and years. We don’t want to see no decline and go back to the 5% unemployment rate we knew a decade ago Were,” she said. “So slow and steady wins the race here.”

Kevin Mahan of Henian & Walsh says a good day is ahead for the US economy


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