However, a moderation of the participation rate has indicated that there is still plenty of room for improvement on employment levels despite an already tight labor market.
The U.S economy added a seasonally-adjusted 428,000 nonfarm payrolls in April according to data released this morning by the Labor Department
This is an increase from March’s revised figure of 380.000 and matching expectations earlier last week when Bloomberg surveyed economists speculation about future revisions being between 20%-30%.
Meanwhile, unemployment held steady at 3.6%.
Ten-year Treasury notes were slightly higher, while U.S stock futures rose and the dollar fell at today’s trading session in New York City.
The labor market is heating up. Job openings and quits are at record highs, with businesses desperate to hire enough workers for the resilient consumer demand that keeps on giving them headaches even when wages rise rapidly in an effort not just keep up but ahead of inflation.
But many employees haven’t seen their incomes increase as much or stay stable over time despite this fierce competition.
Friday’s report on wages shows that while the pace of increase in average hourly earnings may have been slower than expected, it is still up 5.5% from last year and suggests more stability for labor markets going forward.
Jerome Powell, the chair of Federal Reserve warned Wednesday that he expects wage growth to slow and inflation “without having a recession with high unemployment.”
The economy has been running hot over recent months but it’s not all good news for Fed officials – there are risks if prices stay elevated or grow even higher than expected because this could lead businesses into cutting back on hiring more people altogether which would result in an increase in unemployment.
While the Fed’s preferred inflation measure is currently below their target, Powell said he believes it will return to that level over time.
In a move that has been anticipated for some time, this week’s policy meeting saw interest rates raised by the most since 2000.
Powell indicated he may adjust these increases in upcoming meetings as well, which could lead to even higher borrowing costs on American consumers who are already struggling with high debt levels due largely because of recent tax cuts.
Is a Housing Market Crisis Imminent?
May sales of new single-family homes were 10.7 percentage points above April’s revised total of 629,000. In April, the new housing market plummeted 16.6 percent month-over-month to its lowest level since April 2020. May sales were 5.9% below the May 2021 projection of 740,000.
First-time buyers are being driven out of the market by rising mortgage rates, limited inventory, inflation, and record-high home prices—34% higher than two years ago. Many folks can’t afford a house right now. Average 30-year mortgage rates climbed from 3.1% to 6.28% on June 14.
As consumer prices rise, the Federal Reserve raises its main interest rate, making borrowing more expensive, increasing housing costs, and decreasing spending.
House prices make many homes unaffordable. May 2022 new home sales averaged $449,000. The average monthly sales price was $511,400. The global cost-of-living crisis affects customers’ finances, restricting their ability to acquire new homes.
A housing-market crash?
As demand wanes, the housing market may weaken, prompting some to predict a bubble burst or market crash. Mark Zandi, chief economist at Moody’s Analytics, said he expects a “coast-to-coast” correction this week. During the pandemic, homebuyers were tempted by low mortgage rates. As the market and new-home development recovered from the global financial crisis, purchasers fought for fewer properties.
Home builders are less confident about building new homes due to rising costs and declining buyer demand, which could lead to a scarcity of supply. Many experts doubt the home market will implode like it did in 2008, which would be the worst-case scenario. When “no-doc loans” were still available 14 years ago, applicants were more likely to default.
Zillow economist Nicole Bachaud told Forbes that “lending standards have gotten tighter and credit scores for new mortgages are much higher on average now than they were in the early 2000s.”
“What’s much more likely is a gradual slowdown in the pace of price appreciation where home prices continue growing, just not as fast as they are now,” Bachaud said. Homeowners and lenders are also considerably stronger now than then, with higher property values and more home equity. Both won’t panic over the slowdown. The housing market may “correct” itself more gently, responding to declining demand as home prices fall. First-time purchasers, mostly Millennials, could start buying homes again.
Fannie Mae’s top economist Doug Duncan said, “Mortgage rates have ratcheted up dramatically over the past few months, and historically such large movements have ended with a housing slowdown”. Lending Tree senior economist Jacob Channel told the New York Post that rising interest rates had cooled the housing market. “This current ‘correction’ is neither unexpected nor necessarily a bad thing — especially as it will give some buyers a bit more breathing room when they’re housing hunting,” Channel stated.
Federal Reserve Could Raise Its Benchmark Rate 75 Basis Points
On Wednesday, the President of the Federal Reserve Bank of Cleveland, Loretta Mester, stated that if the current state of the economy has not changed by the time the Federal Reserve Board of Governors meets in July to determine the next move in monetary policy, she will be advocating for an increase of interest rates of 75 basis points.
In recent months, one of the most important factors driving market activity has been the Federal Reserve’s plan to continue its path of monetary tightening. This comes as the Fed looks to take aggressive action to rein in skyrocketing inflation, despite acknowledging the risk that steeper interest rate rises will increase the likelihood of an economic recession.
Inflation is currently at a 40-year high, so the Federal Reserve decided to raise its benchmark interest rate by 75 basis points earlier this month. This was the largest rise in the rate since 1994.
Mester, who is a voting member of the Federal Open Market Committee, stated that the meeting in July will likely entail a dispute among FOMC policymakers over whether to opt for 50 basis points or 75 basis points. Mester is a member of the Federal Open Market Committee.
She stated in a recent interview that “If conditions were exactly the way they were today going into that meeting — if the meeting were today — I would be advocating for 75 because I haven’t seen the kind of numbers on the inflation side that I need to see in order to think that we can go back to a 50 increase.”
Mester stated that she will be doing an analysis of the current supply and demand situations in the coming weeks prior to the meeting in order to establish the most desirable course of action regarding the tightening of monetary policy.
The present goal range for the federal funds rate is between 1.5 and 1.75 percent; however, according to the “dot plot” of individual FOMC members’ views, the Fed’s benchmark rate will be 3.4% by the end of the year.
Mester said, “I think it’s really important that we do that, and do it expeditiously and do it consistently as we go forward, so it’s after that point where I think there is more uncertainty about how far we’ll need to go in order to rein in inflation.” “I think getting interest rates up to that 3-3.5 percent, it’s really important that we do that, and do it expeditiously and do it consistently as we go forward.”
U.S. markets dropped significantly on Tuesday following the release of a dismal reading of consumer confidence. The reading, which came in at 98.7 instead of the Dow Jones consensus estimate of 100, added to the unease that investors already felt regarding the sluggish growth of the economy and the potential compounding effect of aggressive monetary policy tightening.
Mester said that the experience of consumers with inflation, which reached 8.6 percent at the headline level in May, was “clouding” their confidence in the economy. In May, the headline inflation rate was 8.6 percent.
She stated that the Federal Reserve is “on a path now to bring our interest rates up to a more normal level and then probably a little bit higher into restrictive territory, so that we can get those inflation rates down so that we can sustain a good economy going forward.”
“Job one for us now is to get inflation rates under control, and I think right now that’s coloring how consumers are feeling about the economy and where it’s going.”
Mester agreed that there is a possibility of a recession as the Fed moves forward with its program of tightening. As a result of the Federal Reserve’s efforts to reduce demand and bring it closer to constrained supply, her baseline projection is for growth to be slower this year, below what she refers to as “trend growth.” She sets the value of “trend growth” at 2%.
She stated, “I expect to see unemployment rates rise over the next two years to a little above 4% or 4.25%, and again that’s still very good labor market conditions.”
“So we’re in this transition right now, and I think that’s going to be a painful one in some respects and it’s going to be a bumpy ride in some respects, but it’s very necessary that we do it to get those inflation numbers down.”
Wheat Producers are Helping to Bring Down Food Prices
It has been four months since Russia invaded Ukraine, which caused trade flows to be disrupted and caused futures’ prices to rise. The fear of a grain crisis is slowly giving way to the hope that important producers will harvest large enough harvests to help repair war-torn reserves. This is essential for the production of wheat, which is needed to feed the world’s population, corn, which is needed to feed hogs, chickens, and cattle, and oilseeds, which are needed to make food.
“Supply may not be as impaired as we think because other areas will compensate for any losses from Ukraine, and it is happening across the board,” said Marc Ostwald, global strategist at ADM Investor Services in London.
It is anticipated that Australia, which is one of the top exporters of wheat, will produce another massive crop this year. On the other hand, corn is piling up outside bins in the principal growing region of Brazil. The worry that spring weather problems would drastically cut down on the amount of land used for growing grain and soybeans in North America has dissipated.
The Bloomberg Agriculture Spot Subindex is on course to have its worst monthly loss since 2011. Concerns about decreasing grain and oilseed supplies, as well as fears that an economic downturn could reduce demand, have pushed crop futures lower from recent highs. While such improvements often take time to reach grocery shelves, Darden Restaurants Inc., owner of the Olive Garden and LongHorn Steakhouse restaurants, reports that chicken and beef prices are cooling slightly.
Fuel pump costs will also have a significant impact on the direction of food inflation for the rest of the year. According to Joe Glauber, former head economist of the US Department of Agriculture, supermarket prices are projected to “moderate over the next six months, particularly if oil prices decline.”
As of June 24, the average daily price of a gallon of gasoline in the United States had fallen for ten consecutive days after reaching some of its highest levels on record. Crude oil futures are down more than 10% from a near all-time high in the days after Russia’s late-February invasion on Ukraine, one of the world’s largest grain and vegetable-oil shippers. Fertilizer, a major expense for farmers, has fallen after reaching new highs.
The United Nations’ food price index fell from a record high in March after the war stifled Ukrainian exports and provoked a slew of sanctions against Russia. Even if the rate of increase slows, high food prices will continue to put pressure on the poor. A government prediction released last week predicts that food prices will rise by much to 8.5 percent this year, however the analysis did not account for the recent decline in agricultural futures.
Furthermore, Goldman Sachs Group Inc., one of the more positive commodity watchers, claimed prices haven’t peaked yet, despite Bloomberg’s broad index of spot commodities falling around 13% from a record high.
“We agree that when the economy is in a recession for long enough, commodity demand falls and hence prices, fall,” experts such as Jeffrey Currie stated in a note. “We are not yet at that state, with economic growth and end-user demand simply slowing, not falling outright.”
Darden Restaurants is enthusiastic about the future. The Orlando, Fla.-based company says it is not passing on higher meat, dairy, and wheat prices to customers because it does not expect the higher expenses to last. Meat prices are starting to “come down a little bit,” and impending crop harvests could help lower wheat prices, according to Chief Financial Officer Rajesh Vennam last week.
Wheat and soybean futures have lost roughly 15% this month, while maize has fallen 13%. Coffee, sugar, and cocoa have all taken a step back.
Food is more of a national security issue in China than an inflation concern. As grain and cooking-oil prices fall, June consumer-price growth in China is projected to be less than 2.5 percent, according to Zhaopeng Xing, senior China analyst at ANZ Bank China Co. in Shanghai.
However, given the uncertain future for grain supplies from Ukraine, India, and other key exporters, he believes it is still too early to declare an end to food inflation.
Palm oil, the world’s most widely used vegetable oil, has fallen almost 30% from its peak as leading shipper Indonesia increases exports to reduce bloated stocks. The decline, combined with a drop in soybean oil and other commodities, might mean cheaper household products like chocolate, margarine, and shampoo. However, as with other agricultural markets, any sign of supply disruption or adverse weather might spark another wild ride.
For the time being, the reduction in essential commodities may provide a much-needed halt in inflation.
“Markets would really love to be able to breathe less stressfully again,” said Arnaldo Correa, a partner at Archer Consulting in Sao Paulo. “Light a candle for your guardian angel, and let’s see how things will play out.”
NFT News4 weeks ago
Paris Hilton: Queen of Metaverse?
NFT News4 weeks ago
This Week’s NFT Winners
Financial News4 weeks ago
Yamana Gold Stock Soars After $6.7 Billion Gold Fields Takeover
Economic News4 weeks ago
Travel Industry Leaders are Lobbying the White House to Eliminate Testing Requirements
Crypto News3 weeks ago
Cryptocurrency Stocks Shot Higher on Monday