You’d be hard-pressed now to find a recession in the rearview mirror. What’s down the road, though, is another story.
There is no historical precedent to indicate that an economy in recession can produce 528,000 jobs in a month, as the U.S. did during July. A 3.5% unemployment rate, tied for the lowest since 1969, is not consistent with contraction.
But that doesn’t mean there isn’t a recession ahead, and, ironically enough, it is the labor market’s phenomenal resiliency that could pose the broader economy’s biggest long-run danger. The Federal Reserve is trying to ease pressures on a historically tight jobs situation and its rapid wage gains in an effort to control inflation running at its highest level in more than 40 years.
“The fact of the matter is this gives the Fed additional room to continue to tighten, even if it raises the probability of pushing the economy into recession,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. “It’s not going to be an easy task to continue to tighten without negative repercussions for the consumer and the economy.”
Indeed, following the robust job numbers, which included a 5.2% 12-month gain for average hourly earnings, traders accelerated their bets on a more aggressive Fed. As of Friday afternoon, markets were assigning about a 69% chance of the central bank enacting its third straight 0.75 percentage point interest rate hike when it meets again in September, according to CME Group data.
Click here to read more.