US: General indicators of unemployment, economic reasons, part-time work

The focus of the week will be the labor market. The June employment report is expected to show unemployment to stay at 3.6%, while employment slows to 268K. Employment growth is an indicator that is expected to slow down in an environment of rising interest rates and increasing economic uncertainty. If there is an increase in the unemployment rate, it will be a situation that policy makers should consider separately for the future strategy at the point of economic transformation. This would mean that the labor market, often viewed as a lagging indicator of an economic slowdown, is weakening faster than FOMC participants had anticipated. In the FOMC economic projections for June, the midpoint of the unemployment rate is expected to reach 3.7% by the end of the year.

It seems that the employment growth will downshift in June. Higher interest rates, more moderate demand for the goods sector, and rising recession expectations indicate that overall labor costs in hiring will also be evaluated in terms of budgeting and investment planning. Like the temporary inflation phenomenon, the soft landing scenario is currently on the optimistic or even rather optimistic side of the expectation scale. Therefore, against the possibility of money and policy managers making a wrong prediction or reading, business managers will also be more cautious in planning and will probably consider the cautious scenario at the point of resource allocation.

Besides all these; There are also some positive signs that will show that the labor market is still strong enough to carry the economy. The recovery in the service sector, which supports sectors such as entertainment and accommodation, as well as education and health services, is still ongoing. On the other hand; In May, the increase in the number of part-time workers for economic reasons – including loose working conditions – and the decline in retail employment underline the weak points. In the past, this component has preceded higher returns for overall unemployment, making it an indicator to watch in the coming months.

In terms of sub-indicators, an increase in labor market participation rate is expected to 62.4% in June. Average hourly earnings are expected to increase 0.3% monthly and 5% year-on-year. If wage data are taken in line with expectations, annual wage inflation will also have moved down from 5.2%. In terms of wage and inflation spiral, it is a detail that can even be considered as good news for the markets and the interest rate cycle. However, it should be noted that while these are happening, inflation is still quite high and maintains its range of coordinated movements on the cost/demand axis.

If we take it in general; Motivation to rejoin the workforce is also still high as inflation erodes the purchasing power of households. Nonfarm payrolls are not only 822K below the pre-pandemic peak, but population growth in between means a shortage of two to three million additional workers.

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