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    Fed report finds higher fears of inflation and potential recession

    The Fed’s Beige Book pointed to elevated recession fears along with a belief that soaring inflation will last at least through the end of the year.
    On inflation, which is running at its fastest annual rate since November 1981, the report found “substantial price increases” across the country.

    A Federal Reserve economic survey released Wednesday pointed to elevated recession fears along with a belief that soaring inflation will last at least through the end of the year.
    The central bank’s “Beige Book,” a collection of views from across its 12 districts, noted the economy is growing at just a “modest” pace since the last report in mid-May.

    Along with that, business contacts reported a general slowdown in demand, with five of the districts expressing “concerns over an increased risk of recession.”
    “Similar to the previous report, the outlook for future economic growth was mostly negative among reporting Districts, with contacts noting expectations for further weakening of demand over the next six to twelve months,” the report stated.
    On inflation, which is running at its fastest annual rate since November 1981, the report found “substantial price increases” across the country. Prices in areas such as lumber and steel had moderated, but there were “significant” increases in food, energy and other commodities.
    Companies, however, reported that they are still able to pass along the price increases to customers, a further inflationary sign.
    “While several Districts noted concerns about cooling future demand, on balance, pricing power was steady, and in some sectors, such as travel and hospitality, firms were successful in passing through sizable price increases to customers with little to no pushback,” the Beige Book stated. “Most contacts expect pricing pressures to persist at least through the end of the year.”

    Labor markets remained tight, though that had alleviated somewhat as demand fell. Companies in four districts said they were considering or had given bonuses to offset rising prices.
    In two districts, workers were looking for higher pay to compensate for inflation that reached 9.1% year-over-year in June.
    Recession fears have grown recently as consumers battered by higher prices have slowed activity and domestic investment has cooled. The economy contracted 1.6% in the first quarter, and the Atlanta Fed has GDP on pace to decline 1.2% in the second quarter, meeting the rule-of-thumb recession definition.
    Responding to higher costs across the board, the Fed has instituted a series of rate hikes aimed at taming inflation.
    Following Wednesday’s consumer price index report that also showed inflation excluding food and energy rose at a brisk 5.9% pace, traders upped their bets on a more aggressive Fed, now assigning an 83% probability that the central bank will hike benchmark borrowing rates a full point at its meeting later in July, according to CME Group data.
    Atlanta President Raphael Bostic said Wednesday afternoon that “everything is in play” regarding potential rate increases and said a 100 basis point, or full percentage point, increase could be on the table for the July 26-27 meeting, according to a Reuters account.

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    U.S. recession looks likely — and there are 3 ways the economy could get hit, analyst says

    The odds of the U.S. economy falling into recession by next year are greater than 50%, TD Securities said Monday.
    Outlining three potential risks, the investment bank named rising gas prices, a hawkish Federal Reserve and a generally slowing economy.
    “The odds of a recession in the next 18 months are greater than 50%,” global head of strategy, Richard Kelly told CNBC.

    Rising gas prices are piling pressure on the U.S. economy.
    Bloomberg | Getty Images

    The odds of the U.S. economy falling into recession by next year are greater than 50%, Richard Kelly, head of global strategy at TD Securities, said Monday, outlining three possible ways it could get hit.
    Rising gas prices combined with a hawkish Federal Reserve and a generally slowing economy are among the tripartite risks facing the world’s largest economy right now, according to Kelly.

    Could that raise the possibility of a recession? “I don’t think it’s a potential,” he told CNBC’s “Street Signs Europe.”

    “The odds of a recession in the next 18 months are greater than 50%,” Kelly added.
    Exactly when that downturn might hit is harder to predict, however.
    Kelly said the economy could slip into a technical recession — defined as two consecutive quarters of negative growth — as soon as the end of the second quarter of 2022. Analysts will be closely watching the Bureau of Economic Analysis on July 28 for early estimates on that.
    Alternatively, the fallout from surging gas prices following Russia’s unprovoked invasion of Ukraine and the Fed’s continued interest rate hikes could both weigh on the economy by the end of the year or into early 2023, he said.

    And if the U.S. manages to weather all of that, a general slowdown could take the wind out of the economy’s sails but mid- to late-2023.
    “You really have three shots at a recession right now in the U.S. economy,” said Kelly.
    “We haven’t even hit the peak lags from gas prices, and Fed hikes really won’t hit until the end of this year. That’s where the peak drag is in the economy. I think that’s where the near-term risk for a U.S. recession sits right now,” he continued.
    “Then, if you get past that, there’s the overall gradual slowing as we get into probably the middle or back half of 2023.”

    Investment firm Muzinich agreed Monday that a forthcoming recession was not a matter of “if” but “when.”
    “There will be a recession at some point,” Tatjana Greil-Castro, co-head of public markets, told CNBC, noting that the forthcoming earnings season could provide a gauge for when exactly that might occur.
    “Where earnings are coming in is for investors to establish when the recession is likely to happen.”
    The comments add to a chorus of voices who have suggested that the economy could be on the cusp of a recession.
    David Roche, veteran investment strategist and president of Independent Strategy, said Monday that the global economic outlook had recently shifted, and it had now become easier to assess how different parts of the world might respond to various pressures.
    “You can now make detailed prognosis for different parts of the world which are themselves very different from the simply blanket recession picture,” he said.
    Roche said he considered a recession the loss of 2-3% of jobs in a given economy, suggesting that a U.S recession may be some way off. Data published Friday by the Bureau of Labor Statistics showed stronger-than-expected jobs growth, with nonfarm payrolls increasing by 372,000 in the month of June, well ahead of the 250,000 expected.
    However, he noted — not for the first time — that Europe is on the brink of what he calls a “war-cession,” with the fallout from the war in Ukraine piling economic pressure on the region, particularly as it pertains to energy and food shortages.
    “Europe may be hit by an energy crisis all of its own which produces the war-cession. The recession caused by war,” he said.
    It comes as Nord Stream 1, the primary pipeline supplying natural gas to Europe from Russia, is shut down this week for maintenance, raising concerns that it could be turned off indefinitely due to ongoing disputes over Ukraine sanctions.

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    Relief Eludes Many Renters as Fed Raises Interest Rates

    As the central bank sharply increases borrowing costs, it could lock would-be home buyers into rentals and keep a hot market under pressure.Rents have been rising swiftly across America for much of the pandemic era, and housing experts are warning that they could now receive a boost from an unlikely source: the Federal Reserve.As the central bank raises interest rates to cool down the economy and contain rapid inflation, it is also pushing up mortgage costs, putting home purchases out of reach for many first-time buyers. If people who would have otherwise bought a home remain waylaid in apartments and rented houses, it could compound already-booming demand — keeping pressure on rental prices.While it is tough to predict how big or how lasting that Fed-induced bump in rental demand might prove, it could ironically make it more difficult for the central bank to wrestle inflation lower in the near term. Rent-related costs make up nearly a third of the closely tracked Consumer Price Index inflation measure, so anything that helps to keep them climbing at an unusually brisk pace is likely to perpetuate rapid inflation.Rents on new leases climbed by 14.1 percent in the year through June, according to Apartment List, an apartment listing service. While that is slightly less than the 17.5 percent increase over the course of 2021, it is still an unusually rapid pace of growth. Before the pandemic, a 2 to 3 percent pace of annual increase was normal. The recent quick market rent increases have been slowly spilling over to official inflation data, which track both new and existing leases.“A lot of folks are seeing now as they go to re-sign their lease that it’s hundreds more dollars than last month, thousands more dollars than last month,” said Nicole Bachaud, an economist at the housing website Zillow, whose own rent tracker is running fast. “We’re going to continue to see pressure in rent prices; to what extent is to be seen.”Gail Linsenbard lectures on philosophy at a college in Boulder, Colo., but housing in the area has gotten so pricey that she has been teaching remotely — recently from a friend’s house in Cincinnati, now from a friend’s place in New York — to make ends meet.“The rents in Boulder have just skyrocketed, so I could no longer afford to live there,” said Dr. Linsenbard, a 62-year-old ethicist, who said that the $36,000 she earns lecturing four classes per semester had always been tight, but was increasingly failing to keep up with inflation. While she can rely on a national network of friends, the situation has disrupted her life.“I’d so prefer my own place,” she said.Besides burdening millions of families across America, rising rents have emerged as a particularly thorny issue for the Fed. While coronavirus-related supply disruptions have fueled price increases in products like cars and couches, the recent surge in rents relates to longer-running fundamentals. America has for years failed to build enough housing, and as members of the massive millennial generation grow older and move away from their parents and roommates, the need for apartments and leased homes has grown.The pandemic took that demographic trend and sped it up. After being cooped up during quarantines, people looked for their own places — and apartment construction could not keep pace.Builders were completing units at an unusually rapid 349,000-per-year rate in early 2022, about 1.2 times the prepandemic pace, based on estimates in a report from the Joint Center for Housing Studies at Harvard. But the number of occupied apartments was rising more than twice as quickly.Rents on new leases climbed by 14.1 percent across the country in the year through June, based on Apartment List data.Anna Watts for The New York TimesAmerica’s rental vacancy rate slumped as apartment supply struggled to keep pace with soaring demand, and was lingering at levels last seen in the 1980s through the start of 2022.The resulting run-up in market rents, which began in earnest last summer, has slowly trickled into official inflation data as people renew their leases. A category in the Consumer Price Index that measures rent of primary residence surged by 5.2 percent in the year through May, and fresh data will be released this week.8 Signs That the Economy Is Losing SteamCard 1 of 9Worrying outlook. More

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    Near-term inflation expectations hit record high, New York Fed survey shows

    The one-year outlook for inflation rose to 6.8% in June, the highest in a New York Fed survey that stretches back to June 2013.
    Expectations diminished for ensuing years. The three-year outlook fell to 3.6% while the five-year outlook edged down to 2.8%.
    The median expected change in home prices for the next year fell to 4.4%, the lowest survey reading since February 2021 and the second-largest monthly decline in the survey’s history.

    A woman shops in a supermarket as rising inflation affects consumer prices in Los Angeles, California, June 13, 2022.
    Lucy Nicholson | Reuters

    Consumers’ inflation expectations over the next year hit record highs, though the outlook over the longer term grew a little more optimistic, according to a survey Monday from the New York Federal Reserve.
    In fact, the one-year outlook for inflation rose to 6.8% in June, a 0.2 percentage point monthly gain and the highest in a data series that stretches back to June 2013.

    Expectations diminished for ensuing years. The three-year outlook fell to 3.6% from 3.9% a month ago, while the five-year outlook edged down to 2.8%, a 0.1 percentage point reduction.
    The Survey of Consumer Expectations comes as the Fed is raising interest rates to address inflation running at its highest level since 1981. Fed officials have raised benchmark short-term borrowing rates 1.5 percentage points this year and have indicated more increases are coming until inflation shows clear signs of a pullback.
    June’s survey results show some confidence that tighter monetary policy will have an impact, though the expectations for the years ahead remain well ahead of the Fed’s 2% long-run inflation goal.
    While participants generally expect prices to keep rising, the outlook for home prices fell dramatically.
    The median expected change in home prices for the next year dropped to 4.4%, the lowest survey reading since February 2021 and the second-largest monthly decline in the survey’s history next to the steep plunge at the beginning of the Covid pandemic in March 2020. May’s survey had indicated a 5.8% annual rise.

    Anxiety also increased about the employment picture.
    The mean probability that the unemployment rate, currently at 3.6%, will be higher a year from now rose to 40.4%, a 1.8 percentage point increase and the highest level since April 2020. The likelihood of losing one’s job over the next year rose to 11.9% from 11.1%, though New York Fed officials indicate that the reading is still well behind the pre-pandemic level of 13.8%.
    Household spending growth expectations pulled back from an all-time high in May to 8.4%, which is still well above the 2021 average of 5%.
    The latest inflation reading will come out Wednesday, with June’s consumer price index expected to show a year-over-year increase of 8.8%, up from 8.6% in May, according to Dow Jones estimates.

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    Biden Seeks Price Cap on Russian Oil Amid Fears of Gas Shock

    Negotiating and selling the plan is a crucial task facing Treasury Secretary Janet L. Yellen as she travels to Asia in hopes of averting $7 a gallon gasoline.WASHINGTON — Relief at the gas pump coupled with this past week’s news that businesses continue to hire at a blistering clip have tempered many economists’ fears that America is heading into a downturn.But while President Biden’s top aides are celebrating those economic developments, they are also worried the economy could be in for another serious shock later this year, one that could send the country into a debilitating recession.White House officials fear a new round of European penalties aimed at curbing the flow of Russian oil by year-end could send energy prices soaring anew, slamming already beleaguered consumers and plunging the United States and other economies into a severe contraction. That chain of events could exacerbate what is already a severe food crisis plaguing countries across the world.To prevent that outcome, U.S. officials have latched on to a never-before-tried plan aimed at depressing global oil prices — one that would complement European sanctions and allow critical flows of Russian crude onto global markets to continue but at a steeply discounted price.Europe, which continues to guzzle more than two million barrels of Russian oil each day, is set to enact a ban on those imports at the end of the year, along with other steps meant to complicate Russia’s efforts to export fuel globally. While Mr. Biden pushed Europe to cut off Russian oil as punishment for its invasion of Ukraine, some forecasters, along with top economic aides to the president, now fear that such policies could result in huge quantities of Russian oil — which accounts for just under a tenth of the world’s supply — suddenly taken off the global market.Analysts have calculated that such a depletion in supply could send oil prices soaring to $200 per barrel or more, translating to Americans paying $7 a gallon for gasoline. Global growth could slam into reverse as consumers and businesses pull back spending in response to higher fuel prices and as central banks, which are already raising interest rates in an effort to tame inflation, are forced to make borrowing costs even more expensive.The potential for another oil shock to puncture the global economy, and perhaps Mr. Biden’s re-election prospects, has driven the administration’s attempts to persuade government and business leaders around the world to sign on to a global price cap on Russian oil.It is a novel and untested effort to force Russia to sell its oil to the world at a steep discount. Administration officials and Mr. Biden say the goal is twofold: to starve Moscow’s oil-rich war machine of funding and to relieve pressure on energy consumers around the world who are facing rising fuel prices.To transport its oil to market, Russia draws on financing, ships and, crucially, insurance from Britain, Europe and the United States. The European penalties, as currently constructed, would not only cut Russia off from most of the European oil market but also from those other Western supports for its shipments. If strictly enforced, those measures could leave Moscow with no means of transporting its oil, at least temporarily.The Biden administration’s proposal would not affect the European ban, but it would ease some of the other restrictions — but only if the transported Russian oil is sold for no more than a price set by the United States and its allies. That would allow Moscow to continue moving oil to the rest of the world. The oil now flowing to France or Germany would go elsewhere — Central America, Africa or even China and India — and Russia would have to sell it at a discount.8 Signs That the Economy Is Losing SteamCard 1 of 9Worrying outlook. More

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    Strong Wage and Jobs Growth Keeps Fed on Track for Big Rate Increase

    The Federal Reserve is trying to cool down the economy to bring inflation under control, but the job market is still going strong.A surprisingly robust June employment report reinforced that America’s labor market remains historically strong even as recession warnings reach a fever pitch. But that development, while good news for the Biden administration, is likely to keep the Federal Reserve on its aggressive path of interest rate increases as it tries to cool the economy and slow inflation.Today’s world of rapid price increases is a complicated one for economic policymakers, who are worried that an overheating job market could exacerbate persistent inflation. Instead of viewing roaring demand for labor as an unmitigated good, they are hoping to engineer a gradual and controlled slowdown in hiring and wage growth, both of which remain unusually strong. Friday’s report offered early signs that the desired cooling is taking hold as both job gains and pay increases moderated slightly. But hiring and earnings remained solid enough to reinforce the view among Fed officials that the labor market, like much of the economy, is out of whack: Employers still want far more workers than are available. The new data will likely keep central bankers on track to make another supersize rate increase at their meeting later this month as they try to restrain consumer and business spending and force the economy back into balance. “We’re starting to see those first signs of slowdown, which is what we need,” Raphael Bostic, president of the Federal Reserve Bank of Atlanta, said in a CNBC interview after the report was released. Still, he called the wage data “only slightly” reassuring and said that “we’re starting to inch in the right direction, but there’s still a lot more to do, and a lot more we’ll have to see.”Fed officials began to raise interest rates from nearly zero in March in an attempt to make borrowing of many kinds more expensive. Last month, the central bank lifted its policy rate by 0.75 percentage points, the largest single increase since 1994. Central bankers typically adjust their policy only in quarter-point increments, but they have been picking up the pace as inflation proves disturbingly rapid and stubborn. While Fed policymakers have said they will debate a move between 0.5 or 0.75 percentage points at their meeting on July 26 and 27, a chorus of officials have in recent days said they would support a second 0.75 percentage point move given the speed of inflation and strength of the job market.As the Fed tries to tap the brakes on the economy, Wall Street economists have warned that it may instead slam it into a recession — and the Biden administration has been fending off declarations that one is already arriving. A slump in overall growth data, a pullback in the housing market and a slowdown in factory orders have been fueling concern that America is on the brink of a downturn. Construction workers in New York City. Employers added 372,000 workers in June.Hiroko Masuike/The New York TimesThe employment data powerfully contradicted that narrative, because a shrinking economy typically does not add jobs, let alone at the current brisk pace. Mr. Biden celebrated the report on Friday, saying that “our critics said the economy was too weak” but that “we still added more jobs in the past three months than any administration in nearly 40 years.”Private sector voices concurred that the employment report showed an economy that did not appear to be tanking. “Wage growth remains elevated and rates of job loss are low,” Nick Bunker, economic research director at the job website Indeed, wrote in a reaction note. “We’ll see another recession some day, but today is not that day.”The State of Jobs in the United StatesJob gains continue to maintain their impressive run, easing worries of an economic slowdown but complicating efforts to fight inflation.June Jobs Report: U.S. employers added 372,000 jobs and the unemployment rate remained steady at 3.6 percent ​​in the sixth month of 2022.Care Worker Shortages: A lack of child care and elder care options is forcing some women to limit their hours or has sidelined them altogether, hurting their career prospects.Downsides of a Hot Market: Students are forgoing degrees in favor of the attractive positions offered by employers desperate to hire. That could come back to haunt them.Slowing Down: Economists and policymakers are beginning to argue that what the economy needs right now is less hiring and less wage growth. Here’s why.The contradictory moment in the economy — with prices rising fast, economic growth contracting and the unemployment rate hovering near a 50-year low — has posed a challenge for Mr. Biden, who has struggled to convey sympathy for consumers struggling with higher prices while seeking credit for the strength of the jobs recovery. Mr. Biden’s approval ratings have slumped as price growth has accelerated. Confidence has taken an especially pronounced battering in recent months amid rising gas prices, which topped $5 a gallon on average earlier this summer. On Friday, Mr. Biden emphasized that fighting inflation was his top economic priority while also praising recent job market progress. “I know times are tough,” Mr. Biden said, speaking in public remarks. “Prices are too high. Families are facing a cost-of-living crunch. But today’s economic news confirms the fact that my economic plan is moving this country in a better direction.” But unfortunately for the administration and for workers across America, tackling high prices will probably come at some cost to the labor market. As price increases bedevil consumers at the gas pump and in the grocery aisle, the Fed believes that it needs to bring inflation under control swiftly in order to set the economy on a path toward healthy and sustainable growth. The Fed’s tool to achieve that positive long-term outcome works by causing short-term economic pain. By making money expensive to borrow, the central bank can slow down home buying and business expansions, which will in turn slow hiring and wage increases. As companies and families have fewer dollars to spend, the theory goes, demand will come into better alignment with supply and prices will stop rocketing higher. Officials expect unemployment to eventually tick up as rate increases bite and the economy weakens, though they are hoping that it will only rise slightly. Fed policymakers are still hoping to engineer what they often call a “soft landing,” in which hiring and pay gains slow gradually, but without plunging the economy into a painful recession. But pulling it off will not be easy — and officials are willing to clamp down harder if that is what it takes to tame inflation. “Price stability is absolutely essential for the economy to achieve its potential and sustain maximum employment over the medium term,” John C. Williams, the president of the Federal Reserve Bank of New York, said in a speech in Puerto Rico on Friday. “I want to be clear: This is not an easy task. We must be resolute, and we cannot fall short.”Federal funds rate since January 1998

    Rate is the federal funds target rate until Dec. 15, 2008, and thereafter it is the upper limit of the federal funds target rate range.Source: The Federal ReserveBy The New York TimesStocks fell after the release of the employment numbers, likely because investors saw them as a sign that the Fed would continue constraining the economy.“The tremendous momentum in the economy to me suggests that we can move at 75 basis points at the next meeting and not see a lot of protracted damage to the broader economy,” Mr. Bostic said Friday.Fed officials are closely watching wage data in particular. Average hourly earnings climbed by 5.1 percent in the year through June, down slightly from 5.3 percent the prior month. Wages for non-managers climbed by a swift 6.4 percent from a year earlier. While that pace of increase is slowing somewhat, it is still much higher than normal — and could keep inflation elevated if it persists, as employers charge more to cover climbing labor costs.“Wages are not principally responsible for the inflation that we’re seeing, but going forward, they would be very important, particularly in the service sector,” Jerome H. Powell, the Fed chair, said at his news conference in June.“If you don’t have price stability, the economy’s really not going to work the way it’s supposed to,” he added later. “It won’t work for people — their wages will be eaten up.”Wage growth may be slowing in retail and hospitality jobs.Percent change in earnings for nonmanagers since January 2019 by sector More

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    U.S. Economy Added 372,000 Jobs in June, Defying Slowdown Fears

    The strong Labor Department report comes as consumers and businesses express increasing concern about a downturn.The U.S. economy powered through June with broad-based hiring on par with recent months, keeping the country clear of recession territory even as inflation eats into wages and interest rates continue to rise. Employers added 372,000 jobs, the Labor Department reported Friday, and the unemployment rate, at 3.6 percent, was unchanged from May and near a 50-year low. Washington and Wall Street had keenly awaited the new data after a series of weaker economic indicators. The June job growth exceeded economists’ forecasts by roughly 100,000, offering some reassurance that a sharper downturn isn’t underway — at least not yet. But the strength of the report, which also showed bigger wage gains than expected, could give the Federal Reserve more leeway for tough medicine to beat back inflation. Now, all eyes will be watching whether the Fed’s strategy of raising interest rates pushes the country into a recession that inflicts harsh pain. Employment growth over the last three months averaged 375,000, a solid showing though a drop from a monthly pace of 539,000 in the first quarter of this year. Employers have continued to hang on to workers in recent months, with initial unemployment claims rising only slightly from their low point in March.The private sector has now regained its prepandemic employment level — an achievement trumpeted by the White House on Friday — though the level is still below what would have been expected absent the pandemic. Other than the public sector, no broad industry lost jobs in June, on a seasonally adjusted basis.“We’ve essentially ground our way back to where we were pre-Covid,” said Christian Lundblad, a professor of finance at the Kenan-Flagler Business School at the University of North Carolina. “So, this doesn’t necessarily look like a dire situation, despite the fact that we’re struggling with inflation and economic declines in some other dimensions.”Strong demand for workers is also evident in the 11.3 million jobs that employers had open in May, a number that remains close to record highs and leaves nearly two jobs available for every person looking for work. In this equation, any workers laid off as certain sectors come under strain are more likely to find new jobs quickly. The Labor Department’s broadest measure of labor force underutilization — which includes part-time workers who want more hours and people who have been discouraged from job hunting — sank to its lowest rate since the household survey took its current form in 1994, a sign that employers are maximizing their existing work force as hiring remains difficult. The education and health sector gained the most jobs in June.Change in jobs, by sector More

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    Big payroll gains push recession fears into the corner — for now

    June’s big payroll jump helped clear away some recession fears for an economy that still could see consecutive quarters of negative growth.
    Interest rate hikes, and the inflation they seek to control, generate worry that all is far from clear for the domestic economy.

    A worker wearing a protective mask slices beef in the butcher section of a Stew Leonard’s supermarket in Paramus, New Jersey, on Tuesday, May 12, 2020.
    Angus Mordant | Bloomberg | Getty Images

    June’s big payroll jump helped clear away some of those recession clouds for a U.S. economy that nonetheless faces some stormy weather ahead.
    Job gains of 372,000 convinced most Wall Street economists that the idea of a first-half recession is “fanciful,” as one put it. A 3.6% unemployment rate is hardly consistent with an economic downturn, at least for the six months of 2022 that are in the rear view.

    But there will still be plenty to deal with ahead as persistently high inflation and multiple rounds of interest rate hikes test the economy’s ability to stay strong.
    “I think we have a ways to go,” said Vincent Reinhart, chief economist at Dreyfus and Mellon. “This was a report long on evidence of aggregate demand and short on evidence of aggregate supply. But four months in a row of almost 400,000 jobs created makes you feel a little bit different about the possibility of two quarters in a row of declining GDP.”
    For the record, the U.S. economy contracted 1.6% in the first quarter and is on pace to decline 1.2% in the second quarter, according to the Atlanta Federal Reserve’s GDPNow tracker. Two quarters in a row of negative GDP is a widely accepted definition of a recession.

    Potential trouble spots

    That comes, though, with monthly job growth this year averaging 457,000, even with a modest slowdown that began in March. The unemployment rate has held at 3.6% the past four months, a combination of solid payrolls gains and stubbornly low growth in the labor force.
    Still, there were a few weak signs in the report, such as a decline of 315,000 in the Labor Department’s survey of households. The labor force saw an exodus of 353,000, and there are still about two job openings for every available worker, exacerbating an inflationary phenomenon in which supply has badly lagged demand across the economy.

    Then there’s the larger notion that the unemployment rate is the worst leading indicator of a recession, with jobs usually continuing to rise in the early days of a recession and then continuing to fall in the early days of a recovery.
    But anyone trying to find signs of a recession in corporate America’s hiring practices would come up empty.
    “Overall, the jobs data support our view that talk of the economy being in recession right now is fanciful, while the wages numbers suggest inflation pressure is easing,” wrote Ian Shepherdson, chief economist for Pantheon Macroeconomics. He added that “the recession story was over-priced” by markets and the Fed is still likely to keep raising interest rates.

    Focus on inflation and rates

    It’s those rate hikes, and the inflation they seek to control, that generate worry that all is far from clear for the domestic economy.
    Average hourly earnings rose 0.3% from a month ago but were still up 5.1% on a 12-month basis. The stronger-than-expected wage and jobs numbers are unlikely to dissuade Fed officials from approving a 75 basis point interest rate increase at their meeting later in July.
    Inflation overall was running at an 8.6% annual rate in May, according to the consumer price index. Fresh CPI data comes out Wednesday, with economists expecting that number could be even higher considering the surge in gas prices for the month.
    Should inflation persist and rate hikes continue, that could slow the economy enough to send it into recession within the next year or so. Multiple economists have been raising their recession odds recently, expecting a downturn to start either late in 2022 or early next year.
    “The U.S. economy is still expanding, and job growth is strong enough to avoid a recession for now, but aggressive rate hikes could lead to a material slowdown,” Wilmington Trust said in a response to the jobs report. “We expect the U.S. and global economies to avoid recession over the next 9-12 months, but risks have risen.”

    Investors are watching the jobs and inflation reports closely, and also have been keeping an eye on the Atlanta Fed’s GDP gauge, which adjusts regularly with incoming data and gets more reliable as the end-of-quarter data rolls in. The tracker had been looking for a 1.9% decline for the second quarter, but Friday’s data improved that picture to a drop of 1.2%.
    While that still puts the U.S. in what traditionally has been considered a recession, Atlanta Fed President Raphael Bostic told CNBC the branch’s economists see the economic picture as fairly bright.
    “The core of the U.S. economy still looks very strong, and that’s what we should focus on,” he told CNBC’s Steve Liesman during a “Squawk Box” interview.
    Bostic stressed the need to get inflation under control, but in relation to the GDPNow indicator, he said there’s “a lot more than just any one number can tell you.”
    “Our focus is still pretty positive about where the economy is,” he said. “We are worried about inflation, and that to me is where our focus really has gravitated toward over the last several months. … We’re going to try to get inflation down while still keeping the economy as strong as possible.”

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