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For the past few months, the economy has been like a jigsaw puzzle with one piece missing. Consumer spending was holding up and overall growth was solid, but the job market looked dangerously unstable.
As of Friday, the final pieces of that puzzle are finally falling into place.
New jobs data for September shows strong employment recovery, falling unemployment and solid wage growth, adding to a recent set of data showing the economy’s resilience. .
And new evidence points to a clear conclusion that the economy is strong.
Revised data released last week showed growth was stronger and revenue more solid than previously thought. Retail sales data remains strong. And now, employers appear to be responding to strong consumer demand by continuing to expand their workforces.
In fact, the report confirms that by many measures, the job market is healthier than ever.
The new data comes as Vice President and Democratic nominee Kamala Harris looks to make her economic case to voters ahead of November’s presidential election. This is good news for the camp.
This supports the idea that the economy is heading for, or may have already achieved, a soft landing in which inflation falls without causing economic pain in the process.
“Inflation is under control and the economy is doing well. This is a soft landing,” said Neil Dutta, head of economics at Renaissance Macro Research. The jobs report was “a sign that the economy is not falling off a cliff, is stabilizing and perhaps is recovering.”
Until recently, economists had reason to be cautious about the economy. The unemployment rate unexpectedly rose to 4.3% in July, the highest level in three years, and job growth slowed sharply. Years of heavy spending had eroded Americans’ savings accounts and increased their credit card balances. The economy didn’t necessarily look weak, but it seemed less able to withstand shocks if something went wrong.
But now the economic situation looks significantly more optimistic.
Not only did the revision reveal that income growth was stronger than previously thought, giving Americans more leeway to maintain spending, but the September employment report showed that the unemployment rate was 4.1. %, indicating stronger employment growth over the summer. More than I originally believed.
“Underestimating the U.S. economy is probably a bad plan,” said Michael Madowitz, chief economist at the progressive Roosevelt Institute.
By several measures, the job market is historically strong. It wasn’t until the early 2000s that prime-age people between the ages of 25 and 54 were employed at rates never seen before. Average hourly wages are strong and trending upwards, even after adjusting for inflation. Women of prime working age are participating in the labor market at record levels.
Taken together, recent data suggests that the economy has found some stability after the roller coaster of pandemic recession and recovery. Workers are no longer changing jobs at a breakneck pace. Spending patterns and work habits are no longer in a state of constant change. It’s giving businesses an opportunity to reset.
“Two years ago, companies were in a situation where they were experiencing staff turnover, and it was taking a long time for companies to onboard and train new employees,” said Nella Richardson, chief economist at payroll processing company ADP. “I think we’re seeing a new kind of job market right now. It’s still healthy, but it looks different.”
As a result, the labor market is probably stronger than it was just before the pandemic, Richardson said. Recruitment these days is widespread and not limited to a few areas. Wage increases have also been widespread, with low-income households experiencing the fastest increases recently. With increased productivity, workers, consumers, and business owners should be able to benefit at the same time without being trapped in a zero-sum game.
This sunny combination is even more remarkable given America’s economic strength over the past four years. First, the pandemic caused businesses to close and unemployment to skyrocket. Inflation then rose, prompting Fed officials to sharply raise interest rates.
Historically, such campaigns by the Fed have led to significant labor market slowdowns and painful recessions.
But this time, the central bank appears to be trying to achieve a rare soft landing, a situation in which inflation slows without causing significant economic pain in the process. In fact, there is no precedent for the Fed to suppress inflation to the level it reached in 2022 without incurring significant costs to the labor market in the process.
“We are no longer in an emergency. We are no longer in an inflationary emergency or a labor market emergency,” said Julia Coronado, founder of Macro Policy Perspectives.
The report paves the way for a more cautious pace of rate cuts for the Fed, which last month cut rates by 0.5 percentage points, the first rate cut in more than four years. While authorities started with deep cuts, they can now cut interest rates in standard quarter-point increments without worrying that the job market will suddenly take a noticeable turn for the worse.
“There’s no need to rush,” Coronado said. “I think it just means a gradual adjustment, but that doesn’t stop them. There’s no re-acceleration here, no inflationary pressures.”
And for the Biden administration, assuming its momentum continues through the election, this report could be the final victory lap.
After years of struggling to take credit for a strong job market driven by rapid inflation, the White House now presides over an economy where prices are rising only modestly and the labor market is still doing well. are. Going forward, Harris will be able to point to substantial and sustained progress as she makes her case to voters.
“This is not just a strong recovery, but a fairly sustainable kind of recovery,” said Madowitz of the Roosevelt Institute.
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