June U.S. Jobs Report: Continued strength lowers expectations of Fed cut in July
8 July, 2019
| Compass California Real Estate Blog
Friday’s national employment report
from the U.S. Bureau of Labor Statistics showed that the U.S. economy added 224,000
in June, exceeding the expectations of market observers who were counting on
lower gains amid some slower May economic reports. The current economic expansion also
entered its 121st month in July, marking the longest expansion in modern
American history.
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.
