US employment data will be published before the opening of trade and according to economists the downward trend in employment growth will continue. That is, the scope of jobs will increase, but at a slower pace than in the past. According to estimates, this is the slowest pace in almost two years. This will reflect a certain softening in the labor market which remains strong And remarkably resistant against the background of the increase in interest rates and the high inflation. The expected result is of course good for the American economy because what it means is that the interest rate increases are working and “supplying the goods”.
The Fed’s big goal is to fight inflation and in the last month, it has succeeded in doing so. This success is reflected in inflation, which dropped to a rate of 7.7% (compared to over 8% the previous month) and also in the latest employment data, so it is expected that even in the data that will be published today, this trend will be reflected.
Economists predict that the US economy added 200,000 jobs in November, Down from 261,000 added in October. As mentioned, this is a slowdown in the growth of jobs, when in February, a record was recorded in the number of jobs added – 714 thousand.
An employment report that matches the forecasts will mark the slowest month for job growth since December 2020, when the economy lost jobs. A report below the forecast will be a significant expression of the success of the Fed’s moves.
At the same time, economists expect the unemployment rate to remain stable at 3.7% in November, Similar to the previous month. These are good economic data, only slightly above the situation before the pandemic. Precisely here it seems that the Fed would have preferred higher unemployment and a weaker ability of consumers to generate demand for products.
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Why is it important to the Fed that the employment report be weak?
A weak employment report actually indicates a reduction in wage pressures. Pressures for wage increases produce inflation. This happens because when wages rise, consumption rises, demands rise and accordingly prices rise. However, the Fed does not want data that is too weak, because then they “throw the baby out with the bath water” and severely damage the economy. That is, on the one hand, demand must be reduced, but on the other hand, not too much because then the economy is dragged into a slowdown and recession.
The chairman of the Fed, Jerome Powell, said this week that the labor market “holds the key to understanding inflation” in the service sector, and that the demand for labor will have to moderate further in order for the increase in prices to slow down. This means that the Fed will closely examine the wage data in the jobs report that will be published . Economists estimate that wages rose by 0.3% (hourly wages), compared to 0.4% the previous month.
The expectation is that the annual rate of salary increase will be 4.6% while last month’s rate was 4.7%. It’s still high, the Fed’s desire for wages to rise at a rate of 2% per year. Otherwise it will continue to fuel demand and price increases.
The employment report has an impact on Wall Street. A good report will strengthen the positive sentiment that started this week at the same time as Powell’s speech on reducing the rate of interest rate increases soon. The Japanese market is indeed in a positive direction. On the other hand, high employment figures may undermine the confidence that we are ahead of a period of decreasing rate of reductions.
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