Is the US economy slowing down as hours worked are declining amidst rising unemployment? | The Financial Express

Is the US economy slowing down as hours worked are declining amidst rising unemployment?

The recent jobs report confirms a slowing economy as the labor force and the unemployment rate increased while hours worked declined.

Is the US economy slowing down as hours worked are declining amidst rising unemployment?
Negative real wage growth has made it cheaper for companies to hire and retain workers on an inflation-adjusted basis.

Whether the stock market is a reflection of the state of the economy or not is a long-standing debate. Back in late 2021, once it was clear that Fed will shrink its balance sheet and will go for a rate hike to tame the rising inflation, the markets started reacting. The US stock market is already down by almost 20% since the start of 2022. Over the last few days, two key developments took place. Firstly, Fed chair Powell indicated that more pain in the economy is to be experienced, and secondly the August job numbers that showed employment to be lagging behind the estimates.

August job gains were 315000, down from 526,000 in July and below the average gain of the previous three months. The unemployment rate showed a jump to 3.7 percent.

José Torres, Senior Economist at Interactive Brokers is of the view that the recent jobs report confirms a slowing economy as the labor force and the unemployment rate increased while hours worked declined.

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While job growth was strong in August, job gains will be a lot slower in the coming months as the labor market loosens. Hours worked coming down alongside increases in the labor force and the unemployment rate point to future labor market weakness and supports the case for slower inflation readings in the coming months as demand weakens, Torres wrote in his note.

Negative real wage growth has made it cheaper for companies to hire and retain workers on an inflation-adjusted basis as they hoard labor to hedge against labor shortages. Productivity has been incredibly weak, placing the marketplace in a position of economic contraction alongside payroll employment gains, a similar occurrence as the 1970s.

Also Read: U.S. economy heading into a major economic downturn?

FED tightening takes a couple of quarters to work its way through the real economy and it continues to pose a severe risk to consumer spending, credit availability, liquidity conditions, and financing costs, implying compressing corporate margins in the near term.

Employment is a lagging indicator while the leading indicators such as housing demand, manufacturing orders, and hours worked have dipped into contraction territory. The unemployment rate will continue to increase as the economy continues to cool.

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