CIO Notebook: June Payrolls Strong but Revisions Underscore Concerns

July 05, 2024

Concerns about the Fed staying too tight for too long have garnered greater attention over the past few weeks as evidence has mounted that disinflation is back on track.

The June non-farm payrolls release indicated that the U.S. economy added +206k jobs in the month, well ahead of the consensus for +190k jobs. Driving this month’s gains were government hiring, health care, social assistance, and construction which added +70k, +49k, +34k, and +27k, respectively. Hiring was essentially flat outside of these sectors, although it is worth pointing out a divergence in retail hiring as general merchandise retailers and supercenters added employees while more discretionary retailers cut staff.

The unemployment rate rose incrementally from 4.0% to 4.1% (4.054% rounded) in June, driven in part by an increase in the participation rate from 62.5% to 62.6%. Wages grew by +0.3% month-over-month and +3.9% year-over-year, still well ahead of the Federal Reserve (Fed)’s preferred level but moving in the right direction. Hours worked were flat once again at 34.3 hours, with manufacturing employees continuing to work in excess of 40 hours a week.

While the headline figure was ahead of consensus, the details are consistent with other, softer data released over the last several weeks. For non-farm payrolls, the trailing 12-month average fell to +220k following two sizable revisions to April and May data, as April’s print was revised lower by -57k to +108k and May’s was revised down by -54k to +272k. The number of unemployed persons, as reflected in the household survey, rose by +162k despite the growth in payrolls. Time to find a job increased to 9.8 weeks from 8.9 weeks in the prior month -- its highest level since early 2022.

Concerns about the Fed staying too tight for too long have garnered greater attention over the past few weeks as evidence has mounted that disinflation is back on track. In our view, this report will likely trigger another spate of calls for the Fed to finally move rates lower at their upcoming meeting in September and set up the potential for two rate cuts in 2024, which is our expectation. Telegraphing that decision will be Fed Chair Jerome Powell’s job over the next eight weeks and with a meeting in late July and the Jackson Hole Economic Symposium in late August, we believe he should have plenty of airtime to work with.

Equities were higher to start the day while bond yields fell in response; the CME FedWatch tool now indicates an almost 72% chance that the Fed will take their first step towards greater accommodation in the September meeting.


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