Is the US labour market cooling?

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Is the US labour market cooling? 

US hiring is expected to have slowed in June after two months of unexpected rises that have helped make the case for the Federal Reserve to continue raising interest rates this year. 

The Labor Department is forecast to report on Friday that the US added 200,000 jobs in June, according to economists polled by Bloomberg, down from the 339,000 added in May.

The unemployment rate is expected to be 3.6 per cent, down from the current rate of 3.7 per cent. Average hourly earnings growth is expected to be stable at 0.3 per cent month over month. 

The US jobs market has been much more resilient this year than economists and analysts expected, running at pre-pandemic levels even as the Fed has raised interest rates at a blistering pace over the past 15 months.

The median estimate from the Bloomberg survey of economists has underestimated the headline jobs figure every month for the past 14 months. The unemployment figure has, however, slowly begun to rise.

June’s jobs data will be a crucial part of the Fed’s deliberations when it meets for its next policymaking session in July. The Fed indicated at its June meeting that it was prepared to raise interest rates twice more this year, with an increase coming as soon as July. Investors in the futures market are currently placing an 84 per cent chance on the Fed delivering that quarter-point increase. Kate Duguid

Can the eurozone economy return to growth?

The eurozone economy has contracted slightly for the past two quarters and next week will provide more clues on whether it is showing signs of emerging from this rut.

High inflation and rising borrowing costs have eroded the purchasing power of many European households over the past year, but there are signs that rising wages and falling energy prices have given consumers a boost recently.

This led to a month-on-month rise in retail sales in France, Spain and Germany in May, pointing to a strong probability that the overall eurozone figure will return to growth for the first time since January when that data is released on Friday.

There could also be more encouraging news for Germany’s struggling manufacturing sector this week. Thursday’s industrial orders data is expected to show a partial rebound with 3 per cent monthly growth in May and output figures on Friday are expected to be up 1 per cent.

However, surveys of businesses and households are pointing to a fresh downturn of activity and demand in June. Jörg Krämer, chief economist at German lender Commerzbank, is sceptical about the chances of a sustained rebound, predicting “the German and euro area economies will contract again in the second half of the year”. Martin Arnold

Where is China’s economy heading?

After a run of downbeat data in China, investors will be looking to next week’s releases on manufacturing and services for clues about the health of the world’s second-largest economy.

The Caixin Manufacturing purchasing managers’ index, due to be released on Monday, is expected to come in at exactly 50 according to a Bloomberg poll of economists, straddling the PMI threshold between expansion and contraction.

Meanwhile, the Caixin Services PMI on Wednesday is expected to show a reading of 56.2, down from 57.1 in May, another Bloomberg poll showed.

Expectations for zero growth in manufacturing in June follow on from this week’s official manufacturing reading, which came in at 49 and signalled a third straight month of contraction among the large and largely state-run manufacturers covered by the government survey. Monday’s reading will reflect conditions among the smaller and private factories employing most of the sector’s workers.

“Apart from a shortlived bounce in the manufacturing sector after the zero-Covid measures were shelved in early December 2022, China’s manufacturing has been limping along,” said Robert Carnell, head of Asia-Pacific Research at ING.

Carnell said the most recent underperformance from the official manufacturing PMI “was not much of a surprise” and that the slowdown in non-manufacturing activity reported on Friday confirmed that much of the growth in services this year has been driven by a “pent-up demand” from consumers previously constrained by China’s zero-Covid policies.

But he warned that “there is only so long that this can go on.” Hudson Lockett