Interest Rates Likely to Drop Amidst Concerns Over Job Market
The national bank is believed to be preparing for a reduction in its key interest rate by a quarter of a percentage point. This move is seen as an attempt to bolster a weakening job market, which is showing signs of instability.
This could potentially be the second time in a mere six weeks that the bank has lowered rates, following a prolonged period of steady rates designed to keep inflation in check.
Despite prices climbing at a faster pace than the bank would prefer, the primary concern currently lies in averting a significant rise in unemployment.
Large Corporations Announce Job Cuts
In recent times, several major companies have declared significant job cuts. One major online retailer is planning to eliminate 14,000 corporate roles. A popular retail company has also announced its intention to cut around 1,000 jobs and leave an additional 800 roles vacant. Moreover, the federal government has reduced its workforce by approximately 100,000 jobs during the initial eight months of the year, with expectations of further reductions in the upcoming months.
Government Shutdown Impacts Economic Predictions
The job of the national bank is made more difficult by the government shutdown, which has obstructed access to much of the official data necessary to monitor the economy. The recent job growth report, expected last month, is now overdue. Furthermore, there is uncertainty surrounding whether the job growth for the current month will be calculated at all.
Last week, the Labor Department did release an official economic report, which showed inflation in the previous month was slightly less severe than anticipated. This supports the belief that concerns over inflation will yield to worries about declining job growth.
"My attention is concentrated on the labor market," said a governor of the national bank earlier this month. "Payroll increases have faltered this year, and employment might already be decreasing."
The governor also mentioned that while the current tariffs are causing a slight increase in prices, he does not foresee enduring effects on inflation.
Analysts Turn to Alternative Data
With the lack of official government data, analysts are turning to other sources to predict the direction of the economy. A payroll processing company recently reported a slight increase in private-sector hiring over the last four weeks. However, it's important to note that the numbers from this company often deviate from the official government figures.
"We're noticing some improvement, but it's minor and preliminary," said the company's chief economist. "In the coming weeks, we might witness further weakness."
Weak Job Market May Affect Spending
As long as workers continue to earn, they can keep spending. However, if job growth halts and layoffs increase, this could negatively impact the wider economy.
"The resilience of consumers is due to the relatively strong labor market," says the economist. "It's not spectacular. The momentum we saw earlier this year has slowed down. But overall, we are seeing enough strength to keep consumer spending stable."
While unemployment showed a slight increase over the summer, the unemployment rate for the last two months has yet to be officially calculated. This has resulted in the bank's governor relying more on reports from business contacts, which present a mixed picture.
"Businesses have indicated to me that there has been some further weakening in the labor market over the last month, while retailers report continued solid spending," the governor said.
Most of the spending appears to be driven by wealthier individuals who aren't as reliant on weekly paychecks. However, a more accurate picture won't emerge until the government resumes the release of economic data.
