Erica Groshen

Visiting Senior Scholar at the School of Industrial and Labor Relations

“The economic tea leaves are particularly difficult to read of late.

“On one hand, two BLS reports bolstered assessments of the strength of the U.S. economy and labor market:

• BLS's last Employment Situation reported that 528K jobs were added in July (exceeding most forecasters' expectations) and
• Normal annual rebenchmarking of payroll jobs estimates revealed that 2021 job gains were 462K higher than initially reported.

“On the other hand, preliminary GDP estimates for 2022 suggest that activity has slowed. However, the degree of slowing has a large dose of uncertainty due to a large divergence between measures based on output (showing contraction) and those based on income (showing some continued growth). 

“The Federal Reserve seeks to dampen the pace of growth in order to slow inflation. Beginning in mid-March 2022, they have raised the Fed Funds Target Rate four times and plan to continue raising it. They are also gradually unwinding their holdings of assets accumulated as part of quantitative easing, which contracts the money supply. The goal is a ‘soft landing,’ that is, lower job growth and a modest increase in unemployment without a descent into recession. Monetary policy actions such as this affect job growth, but the impact lags are often referred to as ‘long and variable.’ So, where can they be seen and how large are they?

“The Employment Situation for August may bring some clarity as to the momentum in the U.S. economy. Beyond overall payroll job gains (or losses?), analysts will look at hours, wage growth, the diffusion index, and the extent to which job growth is affected in interest-sensitive sectors (such as construction, durable goods, temporary help services and mortgage originations). In the household survey, they will look at what is happening to labor force participation and people working part time for economic reasons.”