June U.S. Jobs Report: Continued strength lowers expectations of Fed cut in July
- Friday’s national employment reportfrom the U.S. Bureau of Labor Statistics showed that the U.S. economy added 224,000in June, exceeding the expectations of market observers who were counting onlower gains amid some slower May economic reports. The current economic expansion alsoentered its 121st month in July, marking the longest expansion in modernAmerican history.
- As all eyes are on the Federal Reserve andtheir anticipated actions in the upcoming July, September and Decembermeetings, including President Trump’s. This monthly job report has become oneof the most observed monthly economic indicators. Consequently, strength inJune’s hiring suggests some analysts may have rushed to push for a case ofcutting the interest rates.
- However, while the markets have beenaggressive in trying to drive Federal Reserve’s actions, Federal Reserve is ina precarious position at the moment. Fed Chair Powell has suggested thatdeteriorating inflation expectations and slowing global growth may provide acase for cutting the rates, though the Fed does not want to appear to be bowingto short-term political interests. Further, premature rate cuts may leaveFederal Reserve with fewer tools when the economy indeed hits the brake. Analystsare sticking with the 25 basis points cut expectation for the July FOMCmeeting.
- In terms of housing, however, it is not clearhow much further decline in rates would boost the demand. The 30-year fixed mortgage rates have beenoscillating about 70 to 100 basis points below this time last year, but thenumber of homes sold in California still trends below last year.
- In looking at the BLS report, the unemploymentrate inched up to 3.7 percent as 2019 graduates and summer workers entered thelabor force. Consequently, wage growth also also posted a relatively weakermonthly growth of 0.2 percent though it is still up 3.1 percent from last year.Again, these numbers suggest that there is a little risk of inflation which isactually one of the primary reasons Federal Reserve would cut the rate as theyare concerned with lack of inflationary pressures amid lowest unemployment ratein the last 50 years.
- Further, while the rate of job growth hasgenerally slowed from last year, as anticipated, it’s not very clear if tradeuncertainty has started to weigh on key trade-related sectors, such as manufacturingand transportation & warehousing, which added a combined 41,000 jobs, an uptickfrom the trend in the last few months. However, while trade uncertainty is likelyto weigh most heavily on investment spending, uncertainty in general is neverseen as a positive when comes to businesses’ hiring plans.
- Notable gains continue in professional and businessservices which added 51,000 jobs, and health care, up 35,000 jobs, while retailcontinued on the losing streak with a 5,800-jobs cut in June.
- According to a new CompTIAreport, the information-technology sector added 13,500 jobs in June, withsolid gains in technology services, custom software development and computersystems design, up 7,200 jobs, and computer and electronics productsmanufacturing, up 6,500. The bulk of the new hiring in manufacturing occurredin two areas, electronic instruments and semiconductors and electroniccomponents. Software and application developers continue to be the mostin-demand occupation companies are looking to hire, with 83,700 job postings inJune.