The U.S. economy created 206,000 non-agricultural jobs in the month of June, according to data released on Friday by the Labor Department. Despite the interest rate increases, the job market of the world’s leading economy has remained dynamic in recent years. Analysts were expecting the creation of around 194,000 jobs, so the figure is slightly above forecasts. The unemployment rate, however, rose from 4.0% to 4.1%, one tenth of a point more than expected.
Economists have been studying the differences between the two main surveys that measure the U.S. labor market for some time. The survey carried out on employers has systematically shown stronger job creation than the one carried out on families, which is used to calculate the unemployment rate. The explanation for the discrepancy is not entirely clear, but experts point to problems with both samples. On the one hand, the employer survey probably underestimates the companies that close and disappear, so that the successful ones are overrepresented. For its part, the family survey may be leaving out job creation among the immigrant population, who are more likely to escape the analysis of the statistical authority.
“Sometimes you just can’t reconcile the differences. You just have to look at it and try to understand it,” said Federal Reserve Chairman Jerome Powell after the last monetary policy meeting last month. “We’re left with ambiguous results, and we have to deal with that uncertainty around data. Nonetheless, the overall picture is one of a strong and gradually cooling—gradually rebalancing labor market,” he added.
The U.S. labor market has shown enormous resistance to the tightening of monetary policy by the Federal Reserve, the most aggressive since the 1980s, with which the central bank has been fighting against the highest inflation in four decades. Powell believes the labor market has found a better balance between job offers and unemployed workers. A market that is too rigid, in which it is not easy to find labor, drives wages up, with the risk of generating a wage-price spiral with which inflation becomes entrenched.
“Strong job creation over the past couple of years has been accompanied by an increase in the supply of workers, reflecting increases in participation among individuals aged 25 to 54 years and a continued strong pace of immigration,” Powell said a few weeks ago. “Nominal wage growth has eased over the past year, and the jobs-to-workers gap has narrowed. Overall, a broad set of indicators suggests that conditions in the labor market have returned to about where they stood on the eve of the pandemic—relatively tight but not overheated.”
Members of the Federal Reserve are expecting that the unemployment rate will remain at 4.0% until the end of the year and rise to 4.2% during 2025. That is a soft landing scenario for the economy that is not guaranteed.
Investors are closely monitoring employment and price data to anticipate the next movements in interest rates. The market assumes that rates will remain at their highest in 23 years at the Fed meeting later this month, but believes it very likely that the first cut of 0.25 points will come at the September 17 and 18 meeting, according to the CME Group’s Fedwatch tool.
Strong job creation is one of the assets wielded by the president of the United States, Joe Biden, as he faces re-election. Biden will hold a rally on Friday in an industrial state, Wisconsin, where he will boast about the strength of the labor market. The president is trying to recover from a terrible performance at last week’s disastrous televised debate against Donald Trump in Atlanta. More than his economic legacy, citizens are concerned about his age, physical fitness and mental acuity. Biden is suffering political, media and financial pressure to withdraw from the re-election race, but for now he remains determined to fight.
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