The Tribune

ACTIVTRADES WEEKLY

By CHRIS ILLING

Business Developer

www.activtrades.bs

Who is talking about a crisis and recession? In the US, inflation was last at 9.1 percent, economic output shrank in the first half of the year - but the labour market is booming. Even experts are surprised.

The US labour market developed strongly in July and thus gave no indication of a feared recession. Employment rose more than twice as fast as expected, unemployment reached pre-COVID levels and wages rose again.

Non-farm payrolls (NFP) rose by 528,000 jobs in July, according to the US Department of Labour. That’s more than double the 250,000 new jobs analysts were expecting. In addition, the job numbers for the two previous months were subsequently corrected upwards.

Meanwhile, the unemployment rate fell from 3.6 to 3.5 percent. According to the ministry, about 5.7 million people were unemployed. Both values would correspond to the pre-pandemic level of February 2020, the authority said.

The news was initially received negatively on the stock exchange on Friday. Stock index futures gave way. Apparently, the news of the surprisingly strong labour market reinforces the expectation that the US central bank could also tighten monetary policy by increasing interest rates. Economists had recently clarified their view that inflation would come at the price of a moderate economic crisis brought about by tight monetary policy.

In January and February 2020, the unemployment rate in the US had already reached 3.5 percent, the lowest level in around 50 years before millions of people lost their jobs due to the pandemic. The unemployment rate in was April 14.7 percent, the highest level since the global economic crisis of the 1930s

According to the latest figures, wage growth is accelerating again. Average hourly wages rose 0.5 percent, after 0.4 percent in June. As in June, hourly wages increased by 5.2 percent over the year. Many US companies have been complaining about a labor shortage for a long time, which is why wages are increasing significantly. However, they lag the even higher inflation rate of 9.1 percent.

After the US economy shrank in the first half of the year, it was debated whether one could speak of a real recession given the robust condition of the labour market. The current data seem to deny that. The labour market report was very strong and speaks for further significant interest rate hikes by the US Federal Reserve.

The situation is becoming increasingly difficult for the American government and the governing Democrats. Instead of taking the credit for the full employment achieved in the classic political tradition, they see approval for their policy dwindling because of high inflation, which affects almost all product groups and the majority of Americans.