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As we enter the first six months of 2024, all eyes are on the Federal Reserve as it considers its next move to lower interest rates, tame inflation, and deliver price stability and maximum employment to the domestic economy. There is a lot to balance, especially as high interest rates impact domestic economic growth.
This is a response to the Fed’s high interest rates of 5.25% to 5.5%, with current 30-year mortgage rates over 7%, higher than last year’s average of 6.8%. Gross domestic product (GDP) for Q1 2024 is $28.3 trillion, 1.3% higher than Q4 2023, slowing from 5.4% growth with accelerated inflation from Q1 2023’s GDP of $26.8 trillion. The slowing GDP growth is below the normal non-inflationary GDP growth rate of 2% to 3%. Combined with a possible contraction in the workforce, both are ingredients for an unlikely recession that the Fed is trying so hard to prevent. However, recent reports suggest a weakening labor market.
The unemployment rate is expected to rise to 4.1% in June 2024 (from 4% in April) and 3.8% in June 2023, approaching the Fed's target of 4.4% unemployment rate. In addition to the rising unemployment rate, the labor force participation rate (the percentage of the labor force that is working) remained stable at 62.6 in June 2024 compared to 62.6 in June 2023. Despite the June 2024 labor force participation rate remaining unchanged, the total employed population decreased by 300,000 from 161.5 million in June 2023 to 161.2 million in June 2024. Additionally, the number of people receiving unemployment benefits increased for the ninth consecutive week, to 1.86 million, the highest since November 2021. These individuals join the 6.8 million Americans who were unemployed in June 2024, up 800,000 from 6.0 million in June 2023. While the labor market is weakening, so is hiring for American employers.
Reflecting the hiring situation of American employers, there were 8.1 million job openings in May 2024, up slightly from 7.9 million in April 2024, the lowest number of job openings since February 2021. In addition to the sluggish job openings, there were 5.8 million new hires and 5.4 million layoffs in May 2024. The softening of employer hiring is evident with 9.8 million job openings, 6.1 million new hires, and 5.6 million layoffs compared to May 2023. With the softening labor market, containing inflation seems within reach.
The annualized Consumer Price Index (CPI) inflation rate slowed to 3.3% in May 2024 from 4.1% in May 2023. Core personal consumption expenditures (PCE) inflation, which the Fed tracks, rose 1% to 2.6% from May 2023. Note that this is the lowest annualized increase since March 2021. [for the first-time] Inflation has risen above the Fed's 2% inflation target. Both the CPI and PCE are showing signs of a slowdown in consumer spending, especially on durable goods.
With 1.2 job openings for every job seeker, the unemployment rate is approaching the Fed's 4.4% target. This includes slowing wage growth, which reduces inflationary pressure on companies to raise prices.
Still, the Fed has a lot to consider as it considers when and how much to cut interest rates from their 23-year high of 5.3%.
Martin Cantor is president of the Long Island Center for Social and Economic Policy and a former Suffolk County Economic Development Commissioner. [email protected].