Job opening and consumer confidence in the US both topped forecasts. Indicators pointing toward strength in labor and household demand risks inflation and increase the prospects of another hike of 75 basis points by the Federal Reserve.
The august index for sentiment by the Conference Board showed a 3-month high, and the report also showed firm buying plans for appliances and cars. Job vacancies increased to 11.2 million in July, showing continued tightness in the labor market. The number of jobs available for unemployed persons rose to 2 in July.
Even as the Federal Reserve stepped up its monetary policy brakes, the figures for demand for labor and households remained resilient. Without the corresponding slowdown in spending and easing of wage pressure, the fight by the Central bank to bring down inflation will be more difficult.
The Fed chair Powell said in its annual policy forum at Jackson Hole that the central bank’s focus remained on bringing down inflation to the target of 2 %.
In the last meetings, Fed officials raised rates twice by 75 basis points, and another significant increase is on the cards during the September 20-21 meeting. The consumer price report in the next two weeks and the monthly job report due this Friday, among other economic data, will determine the decision by policymakers.
The Tuesday indicators showed surprising strength in the labor demand despite rising interest rates, and the demand is not expected to decrease soon. The consumer confidence gauge shows that Americans are more optimistic now regarding the economy despite increasing prices of essential items and falling gasoline prices.
According to Derek Holt, a Scotiabank economist, consumers will keep on spending if they are confident about the economy. This means the inflationary trend will continue and keep up the pressure on Fed to raise another 75 basis points in September.
Hawkish comments by Powell and another official in Jackson Hole saw investors leaning toward another 75-basis point hike, as seen in the future contracts linked to the benchmark rate of the US central bank.
Vacancies have increased for eight consecutive months exceeding 11 million, and the unemployment rate remains at its lowest. The largest vacancies are in retail trade, warehousing, transportation, and utilities. Recreation, entertainment, and arts also showed more openings than the previous month, apart from the federal, state, and local government education sectors.
According to Bloomberg economist Eliza Winger, the demand for labor showed no respite even after Fed’s effort to slow down things. This suggests that Federal Bank needs to keep up with its aggressive rate hike course.
The wage growth was tempered to some extent last month, with the easing of Americans quitting their private sector jobs last month, the lowest since May 2021.
The report from Conference Board shows consumers who felt the jobs were plentiful decreased to 48%. According to respondents, business sentiments were expected to improve in the next six months. They said that short-term financial prospects appeared positive.
