Scattered reports of layoffs, declining job openings and a softening economy all point to a slowdown in hiring. And that’s why the number of new jobs created in July is forecast to fall to the lowest level in 19 months.
Here’s what to watch in the employment report on Friday morning:
Wall Street forecast
Employment gains in July are expected to drop to 258,000 from 372,000 in the prior month, a poll of economists by The Wall Street Journal estimates. If so, it would mark the smallest increase since December 2021.
Hiring was bound to slow as the economy recovered from the pandemic. Now rising interest rates and talk of recession are causing companies to reconsider whether to fill open jobs that in some cases have been open for months.
“Tech has had a slowdown in hiring and layoffs,” one executive told the Institute for Supply Management in its monthly survey of business leaders.
Why the worries? The Federal Reserve has sharply raised interest rates to fight high inflation, a strategy that typically slows the economy — or worse. Eight of the last 11 U.S. recessions have been proceeded by a Fed tightening cycle.
Read more MarketWatch coverage of inflation.
The ISM’s surveys of manufacturers and service-oriented companies both showed that employment contracted in July. Layoffs also rose slightly last month, based on the weekly jobless claims report. And job openings fell below 11 million in June for the first time since fall.
Unemployment rate
Wall Street DJIA, -0.26% SPX, -0.08% expects the U.S. unemployment rate to hold steady at 3.6% for the fifth month in a row in what would be a reassuring sign for the labor market.
The rate of unemployment is just a tick above a 54-year low, and although hiring has slowed, most companies still say their biggest labor problem is finding and retaining talented workers.
Yet if unemployment rises in July, investors are likely to view an increase as a negative sign. The jobless rate has only risen once in the past two years, and just briefly.
The Fed predicts unemployment will climb slightly by the end of 2022 and approach 4% within two years, however.
Size of labor force
The U.S. population has grown by 4 million-plus since the last month before the pandemic, but the labor force is still slightly below its record high of 164.6 million in December 2019.
The share of the working-age population in the labor force has also flat-lined and totaled just 62.2% in June, leaving it more than a full point below the pre-Covid high.
Unless a lot more people starting looking for work, the labor market is going to remain extremely tight.
Worker pay
The tight labor market has given workers a big boost in pay, but wage growth is slowing. Economists forecast a modest 0.3% uptick in hourly wages in July.
Such a gain would reduce the increase in wages over the past year to 4.9% from 5.1%, marking the first time it’s been under 5% since the end of 2021.
Even the fastest increase in worker pay in four decades hasn’t been enough to offset the surge in inflation. The cost of living has jumped 9.1% in the past year.
Federal Reserve reaction
The Fed would like to see slower job creation and a tamer increase in wages. The central bank believes the biggest labor shortage in decades is adding to inflationary pressures and could make it harder for the Fed to bring prices down.
The Fed probably won’t find great relief in the July employment figures, economists say, but it would view any dropoff as sign its aggressive strategy in raising interest rates is working.
The Fed plans to continue raising rates in the months ahead.