Unemployment rate is low. Why does the central bank care about the economy?

The U.S. economy added 209,000 jobs in June, a smaller-than-expected increase but bringing the unemployment rate to 3.6%.

As for the Pittsburgh region, its figures lagged behind national data, with the jobless rate dropping a tenth of a percentage point to a 47-year low of 4.1% in May.

These numbers are released monthly and it is easy for most people to get lost in the economic indicators.

So, what do they mean? Why is the unemployment rate tied to inflation and interest rates?

One takeaway: According to David Hand, a statistician with the Pennsylvania Department of Labor and Employment, now is a good time to be looking for a job.

„There are a lot of jobs out there that aren’t being filled, and there aren’t a lot of people to fill them,” he said. „It’s a tight labor market.”

The large number of retirements during the Covid-19 pandemic created few job opportunities.

„This is something we’ve been looking forward to for a long time,” said Lauren Riegel, supervisor of statistics for the Department of Labor and Industry. „In many parts of Pennsylvania, we have an aging population. So there is a small pool of people to hire.

„It gives more power to people looking for or working. It means employers have to do something to attract people who want to work for them.

Nationally, the June release of the numbers gives a glimpse into the first half of the year.

„The June jobs report essentially closes the book on the job market for the first half of the year, setting aside future revisions to the data,” said Mark Hamrick, senior economist at Bankrate.com. „For all that has been thrown at the economy, job creation has been remarkably robust, and the country’s unemployment rate has been very low. But it has not been without pain, given increasing job cuts.

READ  Geopolitical and economic stall energy transition

Overall, more people are working and looking for work, he noted.

In the first six months of the year, payroll growth averaged 278,000 jobs a month, compared with roughly 399,000 last year.

„In general, we wouldn’t complain about the pace of 209,000 job additions like we had in June,” Hamrick said.

„I think the broader move is to try to move away from a very close-minded view — given that the Fed started raising interest rates in March of last year, the job market and the economy have proven to be more stable than expected,” Hamrick said.

What this means for interest rates

But it’s more complicated than just how many jobs there are and how many people are looking for them.

The Federal Reserve still wants to raise interest rates in an effort to control inflation.

The Federal Reserve wants to see an inflation rate of 2% per year. The current rate is double the target. However, inflation has eased significantly from last year’s peak of 9.1%.

The central bank tries to control inflation by influencing interest rates. When inflation is too high, the central bank may raise rates to slow the economy. When inflation is too low, rates can be lowered to stimulate the economy.

In a speech on June 29, Fed President Jerome Powell said: “Inflation has moderated somewhat since the middle of last year. Nevertheless, inflationary pressures continue to rise and the process of bringing inflation back down to 2% has a long way to go.

Powell said rates could rise Two or more times this year.

READ  CBK sees the Kenyan economy grow by 5.7pc despite several global shocks

„The Fed wants to see a little more slack in the labor market,” said Gus Faucher, chief economist at PNC Financial Services Group.

„When you put it all together from that perspective, the Fed wants to see a little bit of slower economic growth. First, we see the economy slowing, and then the labor market slowing. Alternatively, if the economy picks up, the labor market will take a few months to pick up because strong demand will continue.” Businesses don’t want to hire until they can confirm that.

Recession concerns

Hamrick said that while the economy so far appears to be out of recession, some sectors have experienced sharp slowdowns, „due to central bank tightening”.

„These include technology, media/entertainment, manufacturing, shipping and finance,” Hamrick said. „For those who have lost jobs or lost challenging opportunities in these difficult fields, the question of the broader recession may seem academic.”

„The state of the economy, including the job market, remains a question until the end of the year,” he said. „If the inflation-fighting central bank is forced to raise interest rates further, as it has recently indicated, the risks of an economic contraction will remain, or grow.”

Faucher notes that a strong labor market and continued consumer spending have kept the economy moving forward.

“But the central bank has been raising interest rates for a year and a half now. We haven’t felt the full impact of those high interest rates.

„As higher interest rates work their way into the economy, I expect we may have a mild recession later this year or early next year.”

READ  Why premium economy is more important to airlines and travelers than ever before

Stephanie Rittenbach is a Tribune-Review staff writer. You can contact Stephanie at [email protected].

Dodaj komentarz

Twój adres e-mail nie zostanie opublikowany. Wymagane pola są oznaczone *