With the first six months of 2024 behind us, all eyes turn to the Federal Reserve Board (Fed) as it contemplates its next move toward reducing interest rates, curbing inflation, and bringing price stability and maximum employment to the domestic economy. There’s much to balance, especially since high interest rates are impacting domestic economic growth.
Reacting to the Fed’s high interest rate of between 5.25% and 5.5%–pushing current 30-year mortgage rates above 7%–higher than last year’s 6.8% average. The nation’s gross domestic product (GDP) of $28.3 trillion in the first quarter of 2024 is 1.3% above Q4 2023, slowing from the accelerated inflationary 5.4% growth from the Q1 2023 GDP of $26.8 trillion. The slowing GDP growth is below the normal noninflationary GDP growth of between 2% and 3%. When combined with a possible contracting workforce, both become elements for an unlikely recession, something the Fed has been working hard to prevent. However, recent reports point toward a weakening labor market.
Unemployment increased to 4.1% in June 2024 (from 4% in April) and from 3.8% in June 2023, and is approaching the Fed’s target of 4.4% unemployment rate. Addition to the rising unemployment rate is an unchanged labor force participation rate—which is the percent of the labor force that is working—remaining stable at 62.6 in June 2024 as compared with 62.6 in June 2023. Despite the unchanged June 2024 labor participation rate, the overall number of those employed fell by 300,000, from 161.5 million in June 2023 to 161.2 million in June 2024. Furthermore, those collecting unemployment benefits increased for the ninth consecutive week to 1.86 million, the most since November 2021. These individuals joined the 6.8 million Americans out of work in June 2024, increasing by 800,000 from 6 million in June 2023. While the labor market weakens, so is hiring among American employers.
Reflecting hiring among America’s employers is the May 2024 job postings of 8.1 million—a slight increase from 7.9 million in April 2024—the lowest job postings since February 2021. Additional to the sluggish job postings are the May 2024 new hires of 5.8 million, and the 5.4 million in separations and layoffs. The softening of employer hirings is illustrated by comparing to May 2023, and the 9.8 million job postings and the 6.1 million of new hires and 5.6 million of separations and layoffs. With the softening of the labor market, curbing inflation appears within reach.
The annualized Consumer Price Index (CPI) inflation of May 2024 slowed to 3.3%, as compared with 4.1% in May 2023. Core Personal Consumption Expenditures (PCE) inflation—the measure tracked by the Fed—rose by 1%, an increase of 2.6% from May 2023. Note this is the lowest annual increase since March 2021, when [for the first-time] inflation rose beyond the FEDs inflation target of 2%. Both the CPI and PCE are showing signs of cooling consumer spending, particularly for durable manufactured goods.
With 1.2 jobs for every job seeker, the unemployment rate is approaching the Fed target of 4.4%. This also includes wages growing at slower pace, therefore reducing inflationary pressures on businesses to increase prices.
With all this being said, the Fed has much to consider as it reflects on when and how much to reduce interest rates from its 23-year peak of 5.3%.
Martin Cantor is director of the Long Island Center for Socio-Economic Policy and former Suffolk County economic development commissioner. He can be reached at [email protected].