U.S. Economy: Changes in the Labor Market

■ Due to the impact of immigration policies, both labor demand and supply have slowed, while the unemployment rate has remained stable.  
■ Firm wages are fueling inflation risks, and the decision to cut interest rates requires a thorough assessment of employment and price indicators.  

 
    Last week was a busy week for the US economy. At the Federal Open Market Committee meeting on July 29-30, the policy rate remained unchanged despite ongoing calls from President Trump for a rate cut. Fed Chairman Powell emphasized that tariffs' effects will continue to be monitored. Meanwhile, recent labor statistics showed mixed results. Weekly initial unemployment claims and the June Job Openings and Labor Turnover Survey did not indicate a significant rise in layoffs, but the July employment report released on August 1st showed only a 75,000 increase in non-farm payrolls, which fell short of expectations. Gains in May and June were also revised downward by a total of 258,000 jobs, suggesting a sharper slowdown in employment than anticipated. This could challenge the Fed's cautious stance. 

 
    However, Chairman Powell stated at a press conference that he considers the unemployment rate more important than employment figures when evaluating the labor market’s balance. He mentioned that "labor demand and supply are declining at the same pace" and cited multiple data points to support this view. Despite a notable slowdown in employment growth, the unemployment rate held steady at 4.2% in July, just 0.1 percentage point above June, indicating stability. The Employment Cost Index increased by 0.9% month-over-month in Q2, and average hourly earnings rose by 0.3% in July, showing ongoing growth in labor compensation. This pattern of both slowing labor demand and supply, along with the shift in the "unemployment equilibrium point"—where the unemployment rate can stay steady even if labor demand drops, as long as supply decreases—closely relates to current immigration policies. The US is gradually phasing out its deferred action program, meaning more immigrants are expected to lose employment eligibility later this year. This may make future data more complex. Given the continued rise in labor compensation and the effective tariff rate climbing to approximately 20%, short-term inflation risks remain tilted upward. While medium- and long-term inflation pressures are not yet clearly intensifying, the FOMC’s decision on a rate cut in September will depend on employment and inflation risks, including the CPI data to be released on the 12th. 

    However, after the employment data was released, an event occurred that could seriously damage the credibility of government economic data. On August 1st, President Trump claimed that the weaker-than-expected employment figures were due to "political manipulation" and ordered the dismissal of McEntarfer, Director of the Bureau of Labor Statistics within the Department of Labor. At the same time, the resignation of Federal Reserve Governor Kugler has attracted attention, with a new appointment eagerly anticipated. While Trump's recent political interference in the Fed has faced widespread criticism, further meddling in data collection could jeopardize economic forecasts and monetary policy decisions based on this data, potentially increasing uncertainty in the policymaking environment.