Is inflation still on the rise? The jobs report will give clues

The February jobs report could have a big impact on the Federal Reserve’s rate hikes in the coming months.

WASHINGTON. A month ago, the government released a sensational jobs report that showed that US employers added more than half a million job openings in January, twice as much as in December and much more than economists had expected.

The February jobs report, due out on Friday, will be closely watched by economists who are anxious to know whether the January slump was a one-time blip or a sign of a stronger economy.

The answer could greatly influence what the Federal Reserve does in the coming months. A second month of active hiring could heighten fears that inflation is picking up again after months in which it seemed to be declining steadily. In response, the Fed is likely to pursue a more aggressive pace of rate hikes starting with its next policy meeting in two weeks.

Some economists say they think the central bank will announce a substantial half-point hike in its key short-term interest rate rather than a quarter point as it did at its meeting in February. Speaking before Congress this week, Chairman Jerome Powell made it clear that the Fed will increase the size of its rate hikes if the data continues to point to a strong economy and persistently high inflation.

When the Fed raises the base rate, it usually results in higher rates on mortgages, auto loans, credit card borrowing, and business loans. The purpose of raising lending rates is to cool borrowing and spending and slow inflation.

Economists estimate that employers slowed hiring significantly in February, adding 208,000 jobs, according to a survey by data provider FactSet. Although this figure will be much lower than in January, it will still be in line with a healthy economy.

Fast hiring usually results in businesses offering higher wages to attract or retain workers, and their higher labor costs are often passed on to their customers through higher prices. This is a cycle that tends to keep inflation high.

“We have two or three more very important data releases to analyze before” the next Fed meeting, Powell told the Senate Banking Committee on Tuesday. “They will be very important.”

In addition to Friday’s employment report, the data includes Tuesday’s report on consumer inflation in February. Last month’s January inflation report sparked alarm, showing that consumer prices picked up again on a monthly basis.

The bright hiring data for January was the first in a series of reports pointing to an acceleration in the economy earlier in the year. Employers added 517,000 jobs, the most in almost a year, and the unemployment rate hit 3.4%, the lowest level since 1969. Retail and restaurant sales also jumped, and inflation, according to the Fed’s preferred target, rose from December to January. fastest pace in seven months.

Stronger data belied the cautiously optimistic narrative that the economy is cooling moderately—perhaps enough to tame inflation without triggering a deep recession. Now the economic outlook is bleaker.

High interest rates on loans brought down the housing market: home sales fell for 12 consecutive months, which was the result of almost doubling the average mortgage rate during this time. Manufacturing is also showing signs of weakness. Higher rates have made it harder for businesses and consumers to get loans to buy basic factory goods, from cars to automobiles and home appliances.

In contrast, spending on services—things like travel, dining, and entertainment—remains high. Many Americans continue to engage in activities that were restricted during the COVID lockdown.

Analysts say one reason recruiting likely slowed in February is that some of the oversized hires in January reflected one-off factors. The weather, for example, was unusually warm, which likely caused more people to go out and spend money and allowed construction to continue. The Federal Reserve Bank of San Francisco estimates that the weather added about 120,000 jobs to the total in January.

And the UC system strike ended, adding 36,000 jobs to the total for January. Subtracting these two factors would bring January job growth down to around 360,000, which is in line with the average increase over the past six months.

Even at this rate, hiring is about three times the rate the Fed would have preferred. An increase in jobs of about 100,000 a month would be enough to keep up with population growth and prevent a rise in unemployment. Such a low figure would also mean that employers are not so desperate for workers and will not have to continue to raise wages.

Of course, higher wages are good for employees. But Fed officials say it is contributing to higher inflation, especially in labor-intensive service industries such as restaurants, healthcare and hotels.

“Soaring wage growth is good for workers, but only if it’s not overshadowed by inflation,” Powell said in a speech to Congress on Wednesday.

Content Source

Dallas Press News – Latest News:
Dallas Local News || Fort Worth Local News | Texas State News || Crime and Safety News || National news || Business News || Health News

Related Articles

Back to top button