Chart of the Week: Is US labour market strength waning?

The apparent resilience of the US labour market continues, with figures released on 7 July showing private hiring still on the rise. US companies added almost 150,000 jobs last month, according to data from Bureau of Labour Statistics (BLS). Most were in education and health care, construction, business services and leisure and hospitality, reflecting the higher demand that typically occurs when the business cycle is in an expansive phase. At the other end of the spectrum, in a reminder that the current times are not so typical, retail trade and transportation exhibited lower payroll numbers — a fall that reflects the toll that higher interest rates are taking on interest-sensitive business activity. Markets reacted to the report; US Treasury yields ticked up and the S&P 500 lost ground before recovering some of it. This probably reflects the widespread expectation of a fresh rise in interest rates at the Federal Reserve’s July meeting, after the pause in June. While the BLS data still point to a strong labour market, the overall six-month trend in payroll changes has been declining since the start of 2023. The broader question is whether the labour market can maintain its strength and endure the damage from higher interest rates that is already baked into the economy, along with the additional impact of potential further hikes.

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