Fed won’t flinch as labor market begins to falter: Eco Week

(Bloomberg) – The upcoming U.S. jobs report is expected to show that the labor market, while still tight, may begin to transition to more moderate payroll growth from outsized monthly advances.

Payrolls likely rose by around 325,000 in May after rising by 428,000 in each of the previous two months, according to the median estimate from a Bloomberg survey of economists ahead of Friday’s report. Although still robust, the projected advance would be the smallest in just over a year.

The unemployment rate is expected to fall to a pandemic low of 3.5%, and average hourly earnings are expected to rise 0.4% from the previous month.

Federal Reserve policymakers will likely take the data into account as they prepare to continue raising interest rates and wait for a more sustained slowdown in job growth to help moderate wage gains and inflation.

“Tired signs that payroll growth is slowing and wage growth is declining will not be enough to convince the Fed to back off its planned round of 50 basis point rate hikes at the next two meetings,” he said. said Michael Pearce, senior US economist at Capital Economics, said in a note.

Still, “a continued slowdown in payrolls and wage growth will eventually convince officials to slow the pace of tightening by the fall,” he said.

What Bloomberg Economics says:

“The risk of a recession in the second half of 2023 is high and rising. Of course, the only entity that can turn the tide is the Fed. Markets are slamming that the Fed will suspend rate hikes in September, but we believe that that would be premature.In our scenario of a dovish turn by the Fed, that would only happen at the end of the year.

–Anna Wong, Yelena Shulyatyeva, Andrew Husby and Eliza Winger, economists. For a full analysis, click here

Christopher Waller, James Bullard and Loretta Mester are among Fed officials expected to speak next week on the US economic outlook. The central bank will release its latest Beige Book on Wednesday, a region-by-region assessment of recent economic activity.

The economic calendar for the week ahead also includes data on job creations in April, which will indicate whether the demand for labor begins to calm down. Other figures include May surveys of purchasing managers in manufacturing and services, and a report on consumer confidence.

  • For more, read the full week of Bloomberg Economics for the US

Elsewhere, a potential half-point rate hike in Canada, another record inflation reading in the euro zone and slowing Brazilian growth could be among the highlights.

Click here to see what happened last week and below is our summary of what is happening in the global economy.

Canada

The Bank of Canada is expected to continue its aggressive rate hike cycle on Wednesday as it works to bring policy parameters back to more neutral levels.

Markets and most economists are expecting a second straight increase of half a percentage point that would take the central bank’s overnight rate to 1.5%.

A third hike of 50 basis points is expected in July, before the Bank of Canada eases the pace of tightening towards the end of the year, when officials hope inflation fears will be in the rearview mirror .

  • For more, read the Bank of Canada overview from Bloomberg Economics

Asia

China’s Purchasing Managers’ Indexes may show some improvement in May after falling in April. With the country’s leaders increasingly concerned about the outlook, it is likely that there will be scrutiny of the forward-looking sub-indexes.

India’s economy likely grew slower than expected in the year to March, as a third wave of Covid and war in Ukraine halted momentum.

New Australian Prime Minister Anthony Albanese finds out this week how the economy he inherited fared in the first quarter. Gross domestic product is expected to have slowed due to the floods and the omicron, although the biggest concern going forward is how inflation will affect household budgets and consumption, and how the government will respond.

The capital expenditure figures in Japan will indicate whether or not the revised GDP figures will show a larger contraction. A wealth of production and sales data for April will help gauge the initial strength of the rebound.

Yet speakers from the Bank of Japan will likely reinforce the message that the central bank must continue to ease, even with inflation above 2%.

South Korean trade figures could point to a slowdown in global demand and the impact of supply chain issues in China’s lockdown regions. Korean inflation expected on Friday is expected to pick up. The Bank of Korea has already announced that price growth will exceed 5% in the coming months after raising rates at its last meeting.

  • For more, read the full Asia Week Ahead from Bloomberg Economics

Europe, Middle East, Africa

A new record high in eurozone inflation, reflected by a 14-month low in economic confidence, could be among the highlights of data from the last full week ahead of the European Central Bank’s crucial June rate decision. .

With a pre-meeting blackout period due to begin on Thursday, the latest comments from several Board of Governors officials will command attention. They include central bank governors from France, Italy, Spain and Ireland, as well as ECB chief economist Philip Lane.

Elsewhere in Europe, the ECB’s verdict on Croatia’s application to join the euro zone could pave the way for a later decision by governments to authorize the first enlargement of the monetary zone since 2015.

Hungary’s central bank will set monthly and weekly rates just as it faces pressure to help stabilize markets after Prime Minister Viktor Orban’s one-off tax plan hammered local assets.

Meanwhile, the Czech government will debate $400 million in financial aid for families, and Romania’s ruling coalition may also unveil a new stimulus package to help low-income people.

Turkish data due Friday is expected to show faster price gains in May. Annual inflation has already reached 70%.

Kenya’s central bank is expected to leave rates unchanged on Monday as it looks beyond soaring prices and a weaker shilling to support lending ahead of presidential elections. On Tuesday, the Angolan monetary authority is also likely to keep borrowing costs stable as a rally in the kwanza helps contain inflation.

South African data on Tuesday will likely show unemployment fell for the first time since 2020 to 35% in the first quarter, as more respondents in economic hub Gauteng took part in the labor force survey, and a surge commodity prices helped spur an economic recovery. growth.

  • For more, read Bloomberg Economics’ full week for EMEA

Latin America

Mexico’s central bank updated a series of key scenarios and forecasts in its quarterly inflation report on Wednesday. Banxico, in its March report, cut its 2022 GDP forecast to 2.4% from 3.2%, and is expected to do so again.

Unemployment data for April in Brazil, Chile, Colombia and Mexico could show further marginal improvement from their March readings amid low participation rates.

In Brazil, analysts expect the country’s broadest measure of inflation to have slowed for a 12th month in May without falling below 10%.

First-quarter data on Thursday is expected to show that Brazil’s economy has slowed from the modest expansion seen in the last three months of 2021. Given abundant headwinds, look for slow growth through 2023.

In Peru, prices are still on the rise, with analysts expecting inflation in Lima, the capital of the country’s megacity, to jump again in May.

In Chile, the trickle-down from last year’s stimulus and investment, sidelined by ongoing constitutional reform, suggests a weaker reading of April’s GDP proxy data.

  • For more, read the full Latin America Week Ahead from Bloomberg Economics

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