The US Department of Labour employment data released on Friday – September 6th shows an additional 142,000 jobs, up from the 89,000 created in July. The unemployment rate changed to 4.2%, as reported by the government economic data. The unemployment rate was 4.3% in July, the highest in the last three years.
Collectively, the figures point to the fact that the job market is slowing under the influence of higher interest rates but not at an alarming level. The US consumer spending during July also suggested that the economy anchored better than anticipated, which might mean that a 50bps rate cut will be off the table. The Commerce Department’s Bureau of Economic Analysis reported that consumer spending advanced by 0.5% as compared to 0.3% in June. Consumer spending accounts for two-thirds of US economic activity. The increase was across both goods and services. Automotive & Ancillaries led the charge. Sectors like Housing & Utilities, Food & Beverages, Financial Services, Insurance and Recreation also received attention. If we focus on wage growth, workers’ hourly wage rates grew 3.8% on an annual basis(as per the Bureau of Labour Statistics). The inflation rose 2.9% in July which might likely ease to 2.6% in August. The August inflation report will be released on September 11. This implies the gap between inflation and pay is positive. The wage growth amplifies the spending power as it supports consumer spending which keeps the economy on a growth track.
The Fed indicated earlier in the August FOMC that it might initiate a rate-cutting sojourn to keep recession fears at bay. There are enough signs that point to the fact that inflation is cooling off and is well within the reach of the Fed Reserve’s 2% target. However, the opinions that span across academic and policymaker circles are mixed. Almost all of them are batting for a rate cut, but are split on whether it could be 25bps or 50bps. A lot needs to be seen and factored into, in the coming weeks to get a broader macro picture of how the US Fed steers the global financial markets. The next FOMC(Federal Open Market Committee) meeting is scheduled for September 17-18, 2024.