Cooling US labor market supports a steady Federal Reserve policy

One major reason that has been driving US interest rates higher for the past year and keeping inflationary pressures stubborn is the tight labor market. Shortage of labor was loading households with stellar funds, which was keeping the retail demand upbeat and prices of goods and services were not coming down.

On Tuesday, the US Job Openings data displayed the economic data for demand for labor below 10 million for the first time since 2021. This allowed the contracting US Manufacturing sector to join hands with the declining demand for labor and conveyed the message of cooling the US labor market due to a bleak economic outlook.

Back-to-back weak economic data is deepening fears of a recession in the US economy. Therefore the street is anticipating an early pause to the policy-tightening spell by the Federal Reserve. As per the CME Fedwatch tool, investors are advocating an unchanged interest rate decision for May’s monetary policy meeting.

The release of the US ADP Employment data would provide significant guidance about the condition of the US labor market. As per the consensus, the US economy has made fresh additions of 200K jobs in March versus. 242K jobs added in February.

Also, the release of the US ISM Services PMI data will provide major clarity. The US Manufacturing sector has been contracting for the past five months as a figure below 50.0 is considered a contraction. And, contraction in the services sector would stem anticipation of contracting Gross Domestic Product (GDP) on a quarterly basis. The US ISM Services PMI (Mar) is expected to contract to 54.5 from the former release of 55.1. Also, New Orders Index that reflects forward-demand would drop to 57.6 from the prior release of 62.6.