If the labor market is the one thing holding up the economy at the moment, it might be time to prepare yourself for the fact that it’s beginning to degrade as well. While the headline number of 206K jobs gained beat expectations of 190K, not much else in the report was encouraging. May’s job gain was revised sharply lower from 272K to 218K, while April’s was also revised lower from 165K to 108K. The unemployment rate moved up to 4.1%, its highest reading since Q4 2021. Annualized wage growth fell below 4% for the first time since June 2021. Initial jobless claims have been trending higher throughout 2024. Job openings are trending lower. There’s just too many signs here to think that the last tentpole holding the economy up isn’t beginning to bend.
And with that, Powell and the Fed are in a really tough spot. On the labor market data alone, that would suggest the central bank probably has enough ammo to enact a September cut to try to avoid falling behind the way they did in 2022. The market is up to a 78% chance of a rate cut in September and another in December, but Powell is still trying to talk it down. Just this past week, he reiterated that the Fed needed to see more data that confirms the disinflationary trend is intact before cutting or risk another bout of inflation. That doesn’t sound like a guy who’s ready to pull the trigger in September, although he could potentially get there between now and then. I think inflation no longer has to be the primary consideration for Powell in terms of timing interest rate cuts. There are serious signs that the economy is deteriorating in front of us and a cut might be necessary to try to get in front of a sharper slowdown.
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