June U.S. Jobs Report: Continued strength lowers expectations of Fed cut in July

  • As all eyes are on the Federal Reserve and their anticipated actions in the upcoming July, September and December meetings, including President Trump’s. This monthly job report has become one of the most observed monthly economic indicators. Consequently, strength in June’s hiring suggests some analysts may have rushed to push for a case of cutting the interest rates.
  • However, while the markets have been aggressive in trying to drive Federal Reserve’s actions, Federal Reserve is in a precarious position at the moment. Fed Chair Powell has suggested that deteriorating inflation expectations and slowing global growth may provide a case for cutting the rates, though the Fed does not want to appear to be bowing to short-term political interests. Further, premature rate cuts may leave Federal Reserve with fewer tools when the economy indeed hits the brake. Analysts are sticking with the 25 basis points cut expectation for the July FOMC meeting.
  • In terms of housing, however, it is not clear how much further decline in rates would boost the demand. The 30-year fixed mortgage rates have been oscillating about 70 to 100 basis points below this time last year, but the number of homes sold in California still trends below last year.
  • In looking at the BLS report, the unemployment rate inched up to 3.7 percent as 2019 graduates and summer workers entered the labor force. Consequently, wage growth also also posted a relatively weaker monthly 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 is actually one of the primary reasons Federal Reserve would cut the rate as they are concerned with lack of inflationary pressures amid lowest unemployment rate in the last 50 years. 
  • Further, while the rate of job growth has generally slowed from last year, as anticipated, it’s not very clear if trade uncertainty has started to weigh on key trade-related sectors, such as manufacturing and transportation & warehousing, which added a combined 41,000 jobs, an uptick from the trend in the last few months. However, while trade uncertainty is likely to weigh most heavily on investment spending, uncertainty in general is never seen as a positive when comes to businesses’ hiring plans. 
  • Notable gains continue in professional and business services which added 51,000 jobs, and health care, up 35,000 jobs, while retail continued on the losing streak with a 5,800-jobs cut in June.
  • According to a new CompTIA report, the information-technology sector added 13,500 jobs in June, with solid gains in technology services, custom software development and computer systems design, up 7,200 jobs, and computer and electronics products manufacturing, up 6,500. The bulk of the new hiring in manufacturing occurred in two areas, electronic instruments and semiconductors and electronic components. Software and application developers continue to be the most in-demand occupation companies are looking to hire, with 83,700 job postings in June.