Here’s everything you need to know about Friday’s key jobs report

People line up for the opening of the JobNewsUSA.com South Florida Job Fair at Amerant Bank Arena on June 26, 2024 in Sunrise, Florida.

Joe Reddell | Getty Images

The U.S. labor market may have cooled in July as a gradual slowdown in the economy and Hurricane Beryl are expected to take away some of the momentum for hiring.

Still, even if the Labor Department’s July nonfarm payrolls report, due out at 8:30 a.m. ET on Friday, does point to a softer employment picture, the expected decline is only incremental and consistent with the type of mild downward revision from the FBI .

“If the Fed were to achieve a soft landing, that might be the case,” said Mike Reynolds, vice president of investment strategy at Glenmede. “What you’re seeing is just mild marginal weakness in the labor market, which is (unlikely) going to spiral out of control and into negative territory.” Feedback loop.”

In fact, the U.S. Department of Labor’s Bureau of Labor Statistics reports that employment will increase by 185,000 this month, down from 206,000 in June, with the unemployment rate remaining at 4.1%, according to Dow Jones consensus estimates. Employment reports over the past year and a half have regularly exceeded market expectations.

But some economists think the report may be optimistic. Goldman Sachs expects Beryl to wipe out 15,000 jobs as it hits much of Texas, especially Houston. The company believes payroll will increase by about 165,000 people. Citigroup expects the numbers to be even lower – 150,000 people employed and the unemployment rate rising to 4.2%.

If unemployment continues to rise, it could raise concerns that the so-called Sam Rule is in danger of being triggered. The rule leaves no doubt that an economy is in recession when the three-month unemployment rate averages half a percentage point above its 12-month low. A year ago, the unemployment rate was 3.5% and has only started to climb since then.

Fed’s optimism

Jobs were added by an average of 203,000 jobs per month in the first half of 2024, while the unemployment rate continues to rise as more workers enter the labor market, and the number of people considered unemployed but looking for work or temporarily laid off has reached its highest level since October 2021 rise.

Fed Chairman Jerome Powell noted on Wednesday that the previous gap between supply and demand in the labor market was close to equilibrium. Due to soaring inflation, the number of open jobs outnumbers the number of existing workers by just 1.2 to 1, down from 2 to 1 just a few years ago.

If these factors continue to balance and other inflation indicators show progress, Powell strongly hinted that a rate cut could come in September.

“Our confidence is growing because we’re getting good data,” he told a news conference after the Fed’s policy meeting. “Frankly, softer labor market conditions give you more confidence that the economy is not overheating.”

Markets will be watching Friday’s data for confirmation that Powell’s views on the labor market are accurate and that the Fed is not overconfident or waiting too long to start cutting interest rates.

With most indicators showing that inflation is not far from the central bank’s 2% target, Wall Street’s calls for the Federal Reserve to start easing are getting louder. For example, DoubleLine Capital CEO Jeffrey Gundlach told CNBC on Wednesday that he believes the economy is already teetering on the edge of recession.

“When we look back today, … I kind of believe we will say we were in a recession in September 2024,” he said.

Focus on profit

this The Federal Reserve voted at the meeting to keep the benchmark overnight borrowing rate at the range of 5.25%-5.5% that it has maintained over the past year.

Markets rallied on the news but pared gains on Thursday on news that jobless claims rose last week and manufacturing fell further into contraction.

“By delaying a rate cut today, the FOMC is betting that the labor market is strong enough to wait until the fall to confirm that inflation will return to 2%,” said Nick Bunker, director of economic research at Indeed Hiring Labs in North America. “Let’s hope it pays off.”

As always, markets will also be watching the average hourly earnings portion of the report for signs of potential inflation.

Profit is forecast to grow 0.3% this month and 3.7% annually. If the latter is correct, this would be the lowest profit increase since May 2021.

“Even if wage pressures unexpectedly remain ‘stagnant’ or re-accelerate slightly in this report, we think the Fed’s progress on inflation to date means the Fed still has a chance to cut rates in September as soon as follow-up data is released ( For example, CPI in July),” said BeiChen Lin, investment strategist at Russell Investments.