The case against the doom-and-gloom view for American workers

 


Federal Reserve officials at their most recent meeting welcomed signs that inflation is slowing and highlighted data suggesting that the job market and the broader economy could be cooling.

Both trends, if they continued, will likely lead the Fed to cut its benchmark interest rate in the coming months from its 23-year peak of 5.3%.

The minutes of the Fed’s June 11-12 meeting, released Wednesday, showed that the policymakers saw several factors that could further ease inflation in the coming months. These factors included the slower growth of wages, which reduces pressure on companies to raise prices to cover their labor costs.

The policymakers also pointed to several cases of retail chains and other businesses lowering prices and offering discounts, a sign that customers are increasingly resisting higher prices.


Yet the officials also said more evidence was needed to demonstrate that inflation was returning sustainably to the Fed’s 2% target. They signaled that they were in no rush to reduce borrowing costs.

First-time applications for U.S. unemployment benefits increased last week, while the number of people on jobless rolls rose further to a 2-1/2-year high towards the end of June, consistent with a gradual cooling in the labor market.

Weekly jobless claims have drifted higher in June, with the move initially blamed on difficulties ironing out seasonal fluctuations from the data after the Memorial Day holiday in late May. Policy changes last year that allowed non-teaching staff to claim unemployment benefits in at least one state were also blamed. But with claims staying elevated at the end of the month, economists said the labor market was likely slackening.
That, together with abating inflation, keep the Federal Reserve on track to start cutting interest rates this year, with financial markets hopeful that the easing cycle could start in September.
"While layoffs for now remain low, we think the rise in claims reflects more workers applying for benefits because they are finding it more difficult to find jobs as the pace of hiring has slowed," said Nancy Vanden Houten, lead U.S. economist at Oxford Economics.
Initial claims for state unemployment benefits rose 4,000 to a seasonally adjusted 238,000 for the week ended June 29, the Labor Department said on Wednesday. The report was released a day early because of the Independence Day holiday on Thursday.
Economists polled by Reuters had forecast 235,000 claims in the latest week. The four-week moving average of claims increased 2,250 to 238,500, the highest level since last August.
Unadjusted claims increased 13,049 to 238,149 last week.
There was a 4,509 jump in applications in New York, likely related to school holidays. Notable increases were also reported in California, New Jersey, Georgia, Illinois, Iowa, Kentucky and Michigan, more than offsetting declines in Connecticut and Maryland.
Claims have moved to the upper end of their 194,000-243,000 range of this year, in part because of a rise in layoffs as higher interest rates dampen demand as well as difficulties adjusting the data for seasonal fluctuations during holidays.
Volatility could persist after the July 4 holiday. Auto manufacturers typically idle assembly plants for retooling in the summer, but the timing is uncertain.
The labor market is steadily cooling, with the government reporting on Tuesday that there were 1.22 job openings for every unemployed person in May. The vacancy-to-unemployment ratio is close to its average of 1.19 in 2019.
Stocks on Wall Street were trading higher. The dollar fell against a basket of currencies. U.S. Treasury prices rose.
Separately on Wednesday, the ADP Employment report showed private payrolls increased by 150,000 jobs in June after rising 157,000 May. Economists polled by Reuters had forecast private employment increasing by 160,000.
Fed Chair Jerome Powell said on Tuesday that the economy was back on a "disinflationary path," but stressed policymakers needed more data before cutting rates.
The U.S. central bank has maintained its benchmark overnight interest rate in the current 5.25%-5.50% range since last July. The Fed has hiked its policy rate by 525 basis points since 2022 to stamp out inflation.
The number of people receiving benefits after an initial week of aid, a proxy for hiring, increased 26,000 to a seasonally adjusted 1.858 million during the week ending June 22, the highest level since late November 2021, the claims report showed. The so-called continuing claims data have been boosted by a policy change in Minnesota that came into effect last year allowing non-teaching educational staff to file for unemployment benefits during the summer break.
That bump should fade when schools reopen for the new academic year in the fall.
"While both upward trajectories bear watching, the levels and rates of increase to date still appear consistent with a gradually cooling labor market," said Michael Hanson, an economist at JPMorgan. "But a sustained further move higher over the next several weeks would be more concerning for the labor market outlook."
Slowing labor market momentum was also evident in a survey from the Institute for Supply Management, which showed services employment declined in June for the sixth time in seven months.
The ISM's service employment gauge has, however, not been a reliable predictor of payroll gains. Comments from respondents in the survey included "we continue to deploy automation" and "business remains steady in a very tight labor market."
The government is expected to report on Friday that nonfarm payrolls increased by 190,000 jobs in June after rising 272,000 in May, according to a Reuters survey of economists. The unemployment rate is forecast unchanged at 4.0%.
The ISM's services PMI slumped to a four-year low in June, potentially hinting at a loss of momentum in the economy at the end of the second quarter. Prospects for faster growth last quarter were further diminished by a widening trade deficit.
A fourth report from the Commerce Department's Bureau of Economic Analysis showed the trade deficit increased 0.8% to $75.1 billion in May as exports weakened.
The goods trade deficit widened 0.9% to $100.2 billion, the highest since May 2022. Adjusted for inflation, the goods trade gap rose 0.5% to $94.5 billion.
Trade subtracted from gross domestic product in the first quarter, restricting the economy to a 1.4% annualized growth pace. The economy grew at a 3.4% rate in the October-December quarter. Growth estimates for the second quarter are around a 2% pace.
"All of this creates mood music that is conducive to a modest easing in the degree of restraint in monetary policy later in the year and we still expect two quarter point cuts in September and December," said Conrad DeQuadros, senior economic advisor at Brean Capital.

American workers have done far better over the last five decades than conventional wisdom would have it, a new report argues.

There's no doubt the U.S. has plenty of problems, as does its workforce — but those problems come against a backdrop of steadily rising prosperity since the early 1990s, the Economic Innovation Group finds.

 "Simply put: The American worker is doing better than at any time on record across a vast array of important measures," wrote Adam Ozimek, John Lettieri, and Benjamin Glasner with Washington-based EIG, a centrist think tank.

  • The median worker is paid more in inflation-adjusted terms than ever before, workplaces have never been safer nor offered better benefits, and workers enjoy longer tenures with their employers than they did in the 1980s and '90s, the report's authors found.
  • "There is simply no credible case that the typical worker is systematically more precarious, overworked, underpaid, or dissatisfied than they were in some bygone era," they wrote.

The report acts as a rejoinder to researchers on the political left and right who argue that real wages have been stagnant for decades as American workers have not shared the fruits of a more productive economy.

  • viral chart that often makes the rounds on social media shows persistent divergence between labor productivity and wages. But that chart relies on a faulty measurement of inflation — the headline Consumer Price Index, which exaggerates price increases over long time periods.

 The report finds that while wages did stagnate from 1980 to 1993, they have moved steadily upward since then — through three decades, three recessions, and five presidential administrations across both parties.

The idea that the recent past wasn't some panacea for workers rings true, having grown up middle-class in the 1980s. I sometimes think about how our lives — as the children of reasonably well-off professionals — compare with families of similar standing now.

  • Back then, the houses were tiny, the furniture was decrepit, the cars broke down all the time, and few traveled farther than the family station wagon would take them.

Women fared much better than men since 1980, with inflation-adjusted hourly pay rising 60% for women versus 16% for men, EIG found.

  • The share of working-age men in the labor force has drifted downward in that span, from 94% in 1980 to 89% in 2023.
  • This likely reflects widening opportunities for women, shifting family structures, and worsening opportunities in traditionally male fields that require brawn.

It's easy to have a gauzy recollection of the past, and there are certainly aspects of modern life that are harder than they once were. But being clear-eyed about how Americans fare today versus in decades past gives a sunnier picture.

Go deeper: See also accompanying essays (mostly) agreeing with the report from conservative economist Michael Strain and liberal economist Paul Krugman.

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