Strong employment figures may cause the Federal Reserve to postpone its decision to reduce interest rates.
Employers reported 48,786 job cuts in June 2024, a 23.6 percent drop from May, according to a press release from Challenger on July 3.
Compared to June 2023, June 2024 saw a 19.8 percent increase in job cuts, marking the worst June since 2020 and the second-worst since June 2009.
This marks the third instance this year where job cuts in a month exceeded those from the same period the previous year.
Despite the improvement in June numbers over May, this was attributed to a seasonal trend rather than a stronger job market.
“June is typically a low month for job cut announcements, as most companies are midyear or at the end of their fiscal years. The months following fiscal year ends tend to have a spike in cuts, as those plans are implemented,” explained Andrew Challenger, senior vice president and workplace expert at Challenger, Gray & Christmas, Inc.
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“Over the last decade, job cuts have primarily been announced during the first half of the year,” he noted.
In June, the consumer product manufacturing sector saw the highest number of job cuts, followed by technology companies and construction firms.
Despite the trend in layoffs, there are still numerous job opportunities available nationwide.
Last month, Acting Secretary of Labor Julie Su commended the employment situation in the United States, highlighting that the monthly unemployment rate had remained below 4 percent for an extended period, the longest stretch in over five decades.
“May was yet another positive month for the American labor market. The Biden-Harris administration is committed to ensuring that workers have access to good jobs and opportunities for advancement,” she emphasized.
According to Challenger’s data, job cut numbers have only decreased marginally by 5.1 percent in the first half of the year.
The primary reasons cited for job cuts this year were cost-cutting, followed by market/economic conditions, plant closures, and restructuring efforts.
Furthermore, hiring has slowed compared to previous years. The Challenger report reveals that employers announced intentions to hire 19,807 workers in June, the second-highest monthly total of the year.
However, the overall hiring plans for 2024 represent the lowest year-to-date figure since 2016.
Labor Market Impact on Interest Rates
In a report dated June 10, U.S. Bank highlighted that despite indications of an economic slowdown, the labor market remains resilient. This resilience could potentially delay the Federal Reserve’s decision to reduce interest rates.
A robust labor market poses challenges for the Fed in lowering rates. A rate cut could incentivize companies to hire more employees due to cheaper funding, potentially contributing to inflation. This dilemma discourages the Fed from reducing interest rates.
The 12-month inflation rate has consistently exceeded 3 percent since June 2023, surpassing the Fed’s 2 percent target.
“The Fed is seeking gradual, month-to-month declines in living expenses,” noted Rob Haworth, senior investment strategy director at U.S. Bank Wealth Management. “While Fed officials do not anticipate a resurgence in inflation, they also do not seem convinced that rate cuts are necessary at this time.”
Haworth explained that the Fed will closely monitor average monthly wage growth, awaiting a sustained decrease as a positive indicator of easing inflation.
Until there is a “greater degree of certainty” that inflation is moving towards the 2 percent target, Fed officials are hesitant to reduce rates, as stated in the meeting minutes.
Officials also expressed concerns that persistent inflation could lead to tighter financial conditions. Implementing stricter monetary policies in response could result in “deteriorating household financial conditions, especially for lower-income households,” as outlined in the minutes.
