US employers cut more than 1 million jobs in August, in a sign that the Fed’s aggressive efforts to cool the economy are starting to take a toll on the job market.
The monthly decline was the second sharpest in two decades of tracking this indicator, behind only April 2020, when the widespread lockdown froze hiring at the beginning of the coronavirus pandemic.
The figures were released ahead of official employment data, which will be announced on Friday. The indicator will be closely watched by investors for its influence on the Fed’s upcoming US interest rate decisions. The bank is on an aggressive campaign to stamp out inflation, which is approaching its highest levels in four decades.
Job openings, a measure of labor demand, stood at 10.05 million, according to data released Tuesday by the U.S. Department of Labor, down 1.1 million jobs from July.
It was one of the biggest monthly drops in job vacancies in two decades of data analyzed by the Financial Times, second only to the 1.2 million decline reported in April 2020 after Covid-19 was officially declared a pandemic.
While other parts of the US economy were slowing, the job market remained warm, maintaining upward pressure on inflation. But other numbers from the Job Supply and Labor Turnover (Jolts) Survey also indicated that the job market may be slowing.
The number of workers voluntarily leaving their jobs has been falling in recent months, but little changed in August, at 4.2 million people. Voluntary layoffs continue to fluctuate above pre-pandemic levels, a sign that workers are confident they can find new job opportunities. Meanwhile, the job vacancy to unemployed ratio stands at 1.7 to one, after holding steady at two to one over the past six months.
“Today’s Jolts report shows some clear signs that the job market is cooling even if the initial temperature is high,” said Daniel Zhao, an economist at employment website Glassdoor.
The decline in job vacancies should provide some relief to the Fed, which is in the midst of its biggest monetary policy tightening since the early 1980s. Last month, the central bank implemented its third straight 0.75 percentage point increase. in the interest rate, which raised the federal funds rate to a range of 3% to 3.25%.
“Jay Powell, [o chairman do Fed]will be the first to celebrate the job numbers,” said Nick Bunker, economist at employment website Indeed.
While the Fed is raising interest rates to a level that actively constrains the economy, policymakers believe the labor market is so tight that a better balance can be achieved without substantial job losses. They are hopeful that employers, who have struggled since the beginning of the pandemic to find workers, will be more hesitant to downsize at a time when consumer demand is still high.
This runs counter to the view espoused by many Wall Street economists, who predicted that the unemployment rate would hover around or above 5% as the Fed moves forward in its efforts to return inflation to its annual target of 2%. Under these circumstances, a recession is almost inevitable, they argue.
In his first public comments since taking over as chairman of one of the Fed’s regional units, Philip Jefferson on Tuesday described the job market as “very tight” but said the supply-demand imbalance “will likely ease up a little bit.” “.
Powell and other officials more directly acknowledged that the process of restoring price stability will involve “some suffering,” but still they did not predict a recession. At the news conference that followed the September interest rate decision, however, Powell admitted that “no one knows whether this process will lead to a recession or, if it does, how severe the recession will be.”
The Labor Department will release figures on nonfarm payrolls on Friday, which economists expect show the United States created 250,000 jobs in September — possibly the lowest monthly growth this year. The unemployment rate is forecast to remain steady at 3.7%, close to its lowest point in five decades.
“Employers continue to hire, so there’s still momentum in the job market,” Bunker said. “It’s just that the speed has dropped a little bit.”
Translation by Paulo Migliacci
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