Status: 08.07.2022 4:48 p.m
The US labor market is booming: more new jobs were created in June than expected. According to economists, this means the green light for the US Federal Reserve to continue raising interest rates sharply.
More jobs were created in the United States in June than expected: 372,000 jobs were added outside of agriculture, the US Department of Labor said in Washington. On average, analysts had only expected 265,000 new jobs. The separately calculated unemployment rate remained at the previous month’s value of 3.6 percent – a level that should correspond to the full employment target of the central bank Fed.
Stock market prices fall after strong jobs data
In view of the strong labor market and simultaneously escalating inflation, the US Federal Reserve recently raised key interest rates more sharply than at any time since 1994. It decided on an increase of 0.75 percentage points to the range of 1.50 to 1.75 percent. For the meeting at the end of the month, the monetary authorities are considering an increase of 0.5 or 0.75 percentage points. Investors on the US stock exchanges are therefore concerned that aggressive interest rate hikes will stall the economy. And so the three major indices on Wall Street open in the red after the release of the June jobs report. The DAX also returns part of its profits.
Employment almost like before Corona
Thomas Gitzel, chief economist at VP-Bank, told the Reuters news agency that total employment is now almost back to the level before the outbreak of the corona pandemic. Finding new employees is a difficult task for companies. At the same time, Gitzel estimates that wage growth will remain at a high level of 5.1 percent. However, the increase in wages is not enough to offset the inflation rate of 8.6 percent recently. “In real terms, there is still a drop in wages. This is precisely why no major leaps are to be expected in US consumption at the moment. US citizens will have to tighten their belts – despite the good development on the labor market,” said the chief economist at VP Bank .
Job data strengthens Fed interest rates
The question now is whether the US Federal Reserve will take the good labor market data as an opportunity to raise interest rates even more in the coming month. Dirk Clench from LBBW believes that the Fed should not find any reason in the employment report for June to refrain from the announced key rate hikes on a large scale. The economists at Helaba take a similar view. They see the labor market in the US as continuing to be in very robust condition, “so that the labor market report does not stand in the way of the US Federal Reserve’s plans to raise the key interest rate range again by 75 basis points in July.”
Central bankers face a dilemma
Bastian Hepperle from the private bank Hauck Aufhäuser Lampe is a little more skeptical. “Job growth is still impressive, but has slowed down over the past four months. That’s a good thing, because a slowdown is good for the US job market.” In Hepperle’s view, however, the high burdens caused by inflation and the upcoming US interest rate hikes will increasingly weigh on the US economy. If worries about a recession increase, the willingness of companies to hire dwindles. So the labor market could face worse times.
The central bankers are faced with precisely this dilemma: on the one hand, they have to keep high inflation in check, but on the other hand, the financing conditions for companies and private households are likely to worsen as a result of the rise in interest rates. Loans then become more expensive, which in turn would harm economic growth.