The US economy unexpectedly added 528,000 jobs last month and the unemployment rate returned to a half-century low, easing fears of a recession as the labor market remained buoyant even in the face of high inflation, more restrictive monetary policy and reduced fiscal support.
The data showed an acceleration in the pace of job creation compared to June, when the economy added 398,000 jobs and more than double the 250,000 forecast by economists.
The unemployment rate fell to 3.5% from 3.6%, equaling the half-century low reached just before the start of the Covid-19 pandemic in 2020.
Figures released on Friday indicate that the US labor market has made up for all the jobs it lost since the start of the pandemic that began in February 2020 and will allay fears of a recession in the world’s largest economy a few months before the mid-term elections. they will determine the control of Congress. They could also encourage the Federal Reserve to pursue its rapid tightening of monetary policy to tame the price spike.
In response to the report, Treasury yields rose, while the S&P 500 fell 0.4% during Friday lunchtime trading on Wall Street, as market participants wagered that the Fed would do so. more aggressive to tame inflation.
The two-year Treasury yield, which moves with interest rate expectations, rose 0.21 percentage points in two weeks at a high of 3.25%. The 10-year Treasury yield jumped 0.17 percentage points to 2.84%.
The moves have exacerbated the extent to which two-year Treasury yields exceed those of the 10-year note. This so-called reversal of the yield curve is generally considered an indicator of an impending economic contraction. As a result of the report, the spread has been reversed at most since August 2000.
In the futures market, traders began exploring the possibilities of a larger rate hike during the Fed meeting in September. Expectations are now that interest rates will exceed 3.6% by the end of 2022, up from 3.4% before the report was released.
Pimco economist Tiffany Wilding said the new employment data would push the Fed to raise rates by 0.75 percentage points for the third consecutive meeting in September and to anticipate its expectations for further tightening in 2023 in 2022. .
“This is clearly a story of wage inflation spreading across all sectors, which is a worrying sign that inflation will remain sticky even as energy and food prices are falling. This is all about Fed officials, “she said.
In a statement, President Joe Biden hailed the report as proof that his economic policies were working, even though polls show that most Americans disapprove of his management of the economy.
“More people work than at any point in American history. . . And it’s the result of my business plan to build the economy from the bottom up, ”she said.
Gross domestic product data released last week showed the second consecutive quarterly contraction in manufacturing in the United States, raising fears of weakness in the economy. Economists at the National Bureau of Economic Research – the arbiters of what constitutes a recession in the United States – have not said whether a recession is underway, but any sharp decline in job creation could exacerbate these concerns.
Senior officials in the Biden administration have dismissed concerns that the US is in a recession, saying the economy remains in good shape and is simply transitioning to a slower foot following the boom it experienced last year.
Fed chairman Jay Powell warned against reading GDP figures too much and said he still believes interest rates could rise further without triggering a painful plunge. But he warned that the path to that result was becoming “narrower”.
On Thursday, the U.S. Department of Labor separately released data showing that the number of people filing for unemployment benefits last week reached 260,000, the highest level in more than six months, raising alarm bells on the direction of the labor market.
“We are not in a recession right now. Are the risks of recession increasing? Yes, “said Loretta Mester, president of the Cleveland Fed, at an event in Pittsburgh on Thursday. She said she expected interest rates in the United States should rise to” a little above 4. [per cent]”To tame inflation.