Macro Insights Weekly: A less robust US labor market

S&P 500 just had the worst first half since 1970. Elevated US inflation and outsized Fed hikes have heightened US recession fears. Last week was about weak US consumer confidence and manufacturing...
Group Research, Philip Wee, Nathan Chow04 Jul 2022
  • US unemployment rate to stay low at 3.6% for the fourth month in June
  • US nonfarm payrolls may drop below 300k for the first time since April 2021
  • US tech companies have started layoffs and rescinding previous job offers
  • The cooling US housing market will trigger more layoffs too
  • The US midterm elections in November might matter to markets
Photo credit: AFP Photo

Commentary: The tight US labor market is becoming less robust

Friday’s US unemployment rate can stay at 3.6% for the fourth month in June as per continuing caims. The Fed’s latest forecast for the jobless rate to rise to 3.7% in 4Q22 appears optimistic. Initial jobless claims have been rising steadily with every Fed hike.

US nonfarm payrolls may decline below 300k in June for the first time since April 2021. The odds will increase if Thursday’s ISM Services employment slips below 50 again in June. On a 4-week moving average basis, initial jobless claims have risen with each Fed hike to its highest level this year.

Manufacturing payrolls could also turn negative after ISM manufacturing employment extended its decline below 50 to 47.3 in June, its worst reading since October. US tech companies have started announcing layoffs and rescinding previous job offers. Some of the reasons cited are high inflation and, notably, heightened recession risks amidst the worst 1H stock market sell-off since 1970.

Reuters reported that mortgage lenders, refinancing companies and real estate brokers plan to lay off thousands of workers in the coming months. The US housing market is cooling despite higher home prices. Existing, pending and new home sales have slowed this year. Rising home prices, higher mortgage rates and deeper negative wage growth have rendered home ownership less affordable. Home buyers also turned cautious on heightened US recession risks amidst uncertainties over the Russia-Ukraine war.

Consensus expects June’s average hourly earnings growth to slow a third month to 5% YoY in June. Earnings peaked at 5.6% YoY in March at the first Fed hike. In month-on-month terms, earnings were unchanged at 0.3% for three months. Slower wage growth should help ease the Fed’s worries about a wage-price spiral. As inflation and cost of living become voters’ top issues, the US midterm elections in November might matter to markets. As witnessed during Fed Chair Jerome Powell’s semi-annual congressional testimonies last month, Republicans blamed the Biden administration for stoking inflation with massive stimulus spending. Unlike the Covid recession, monetary and fiscal stimulus will be less forthcoming if a recession turns up.

Philip Wee

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Philip Wee

Senior FX Strategist - G3 & Asia
[email protected]


Nathan Chow 周洪禮

Senior Economist and Strategist - China & Hong Kong 高級經濟學家及策略師 - 中國及香港
[email protected]

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