In the details of the July employment report, which will be announced tomorrow, the employment increase on the basis of market expectations is 250K, the unemployment rate is 3.6%, the labor force participation rate is 62.2%, the average hourly earnings are 0.3% on a monthly basis and 4.9% on an annual basis. . The implications for expectations show a trend to slow down from the peak momentum, although a strong hiring rate has been maintained. Despite this, projections are positive and unemployment indicators still support tight conditions.
One of the indicators that will solve the question of whether we are already in a recession is the labor market. Therefore, whether we are in a recession will be analyzed in the details in the initial employment data for 3Q22. Firms’ continued hiring, activity being in the expansion zone as seen in the ISM data, and spending rates in the PCE data are not in a direction confirming a recession in a qualified sense. Therefore, the markets will not be inclined to act in a recession cycle just like the economic decision makers. Of course, this will create the perception and surprise variable effect of the data asymmetrically. Status quo Fed in strong data, a Fed perception that can evolve rapidly in weak data will come to the fore.
Wage increases may not have reached their peak yet, and we can still see the high trend in monthly data in the inflationary environment. In the same period, the labor force participation rate is also decreasing. With the fact that those who want to work are already finding jobs, the labor market may remain tight for a while and the process of cooling wage growth may take some time. This will likely take longer than the Fed predicts.
Besides all these; There are also some positive signs that will show that the labor market is still strong enough to carry the economy. Indicators showing that the economy still has enough resilience for the Fed to continue raising interest rates will hold for a while. This will indicate that employment data will likely not be in line to change the Fed’s plan.
If we take it in general; Employment growth is still described as strong, and that’s what gives the Fed confidence. While strong data indicate that the Fed will not step on the gas, weak data will be read together with the weakening of inflation expectations in the future and the views that the Fed may cut interest rates next year.
Kaynak: Tera Yatırım
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