Wall Street will keep a close eye on new US employment data on Friday, the latest sign that the US economy is slipping into recession as the Federal Reserve wages a war on inflation that aims to reduce demand by slowing the economy .
The resilient workforce of recent months has so far weathered a series of hikes in Fed borrowing costs, but economists expect July employment data to show a marked slowdown.
Evidence of a weakening job market has mounted this week, amid layoffs at high-profile companies like Walmart and Robinhood, as well as a government report that showed a sharp drop in job openings in June.
The median of economic forecasters expects 250,000 nonfarm payrolls to have been added by July, according to Bloomberg. The figure would be the lowest monthly gain since December and a significant drop from the 372,000 jobs added in June. The unemployment rate stood at an almost historic low of 3.6% in June.
In addition, the expected figure would be a departure from the strong hiring sustained in the first half of 2022, in which the economy added an average of 461,000 jobs each month.
“The job market is a bright spot in the economy, but there are signs that the job market is clearly cooling,” Daniel Zhao, senior economist at the career site Glassdoor, told TSWT News. “It looks like the job market is healthy — even if demand is slowing, layoffs are still very slow.”
While a slowdown in hiring may alarm economists and ordinary Americans, the signal of declining labor demand could ease pressure on the Fed to continue its aggressive rate hikes. At meetings in each of the past two months, the central bank has raised its benchmark rate by 0.75% — dramatic increases last matched in 1994.
Despite a series of increases in borrowing costs designed to lower prices, inflation has not only persisted, but has worsened. Data released last month showed that prices rose a whopping 9.1% in June, representing the highest inflation rate in more than four decades.
Worryingly, the price increases have coincided with contracting economic output. Gross domestic product fell by 0.9% year-on-year in the second quarter, after a decline of 1.6% in the previous quarter.
The recent trend qualifies for the shorthand definition of a recession consisting of two consecutive quarters of GDP decline. But the formal designation of a recession depends on a wider range of statistics weighed in by the National Bureau of Economic Research.
This year, the tight labor market has delivered a strong corner of the economy so far. But employment data indicated a weakening Tuesday, as a government report showed job openings plummeted in June to its lowest level in nine months. However, the 10.7 million job openings reported in June remain a high figure.
Meanwhile, a slew of major companies have announced job cuts or staff delays in recent days. Walmart laid off nearly 200 company employees on Wednesday, The Wall Street Journal reported. A day earlier, Robinhood announced plans to cut 23% of its staff. Tech giants Apple, Amazon and Google parent company Alphabet recently announced they will be slowing down hiring.
Still, overall strong hiring in recent months defies typical recession conditions, Glassdoor’s Zhao said.
“It would be very unusual to have a recession if we were still adding several hundred thousand jobs per month,” he said. “Of course, if we have a surprisingly bad report showing job losses this month, that could change the picture.”