Strong jobs data bolsters Fed case for another interest rate hike

Speculation is strong today that a blockbuster jobs report will keep the Federal Reserve on track for another hefty interest rate hike during its meeting later this month.

The labor market continues to be strong, with 372,000 jobs added in June 2022, after a downwardly revised increase of 384,000 jobs in May. Despite gathering economic headwinds, there is still no clear indication that the labor market is cooling.

The unemployment rate remained at 3.6 percent for the fourth consecutive month. The labor force participation rate fell slightly to 62.2 percent, down from to 62.3 percent in May. Overall, employment is near its pre-pandemic level, down only 0.3 percent compared to February 2020, representing about 500,000 jobs. Job recovery has been slower for women, with employment still 0.5 percent below pre-pandemic levels, compared to 0.2 percent for men.

The jobs report was chock full of good news. In fact, only government jobs lag behind pre-pandemic levels.

Where were the jobs in June?

Biz +74,000
Healthcare +57,000
Restaurants +41,000
Transport/warehouse +36,000
Manufacturing +29,000
Information +25,000
Wholesale trade +16,000
Retail +15,000
Hotels +15,000
Construction +13,000
Arts & recreation +12,000
**Day care +11,000**

— Heather Long (@byHeatherLong) July 8, 2022

Governor Christopher Waller and James Bullard, president of the St. Louis Fed, are already calling for a 75-basis-point increase in the interest rate to further curb inflation. Both are voting members of this year's Federal Open Market Committee.

The jobs report will likely add momentum to raising rates.

The strong employment figures released Friday keep the Federal Reserve on track to raise interest rates by 0.75 percentage point at its meeting later this month to cool high inflation https://t.co/bQ7mFDk1bS

— The Wall Street Journal (@WSJ) July 8, 2022

“The tremendous momentum in the economy to me suggests that we can move at 75 basis points at the next meeting and not see a lot of protracted damage to the broader economy,” Raphael Bostic, president of the Federal Reserve Bank of Atlanta, said in a CNBC interview after the report.

In an interview with Marketplace prior to the jobs data release, Mary Daly, the president and CEO of the Federal Reserve Bank of San Francisco, said the Fed is in a period of "extreme data dependence."

"Right now, whatever the jobs report says, in this month, this Friday release, you know, we still need to get — remove the accommodation we've been giving the economy that's been extraordinary," Daly said, referring to monetary policy that's kept interest rates extremely low.

Daly isn't currently a voting member of the Federal Open Market Committee, which sets the federal funds rate. She does, however, participate in its policy discussions. If the Fed raises rates more — which it's indicated it's likely to do — Daly said the labor market, with two job openings for every unemployed job seeker, is strong enough to weather it.

"So as we raise the interest rate, I would assume — I would expect — those vacancies to come down before we start pushing people out of jobs," she said.

Tight market

Wage growth is still elevated, although it seems to have plateaued, The Conference Board said in its analysis. Average hourly earnings grew 5.1 percent over the last 12 months and have remained between 5 and 6 percent (annual growth) since Q4 2021. The labor market is still very tight and continued hiring and retention pressures will keep wage growth elevated.

"Faster wage growth, in turn, will make it harder for price inflation to decelerate as companies will increase product and service prices to cover for increasing labor costs," The Conference Board added.

A non-profit business membership and research group organization, The Conference Board agreed that the jobs report "does not support the argument that we are in recession presently and shows the labor market is strong enough to weather additional interest rate hikes.

"However, with the Fed planning to rapidly raise interest rates over the coming months to fight high inflation, the risk of a short and mild recession in the near future is high."

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.