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Market Update

Non-farm payrolls underwhelm at last; Fed stays firm on work to be done

July 10, 2023


Job growth stuns in the reverse direction for a change, coming in below expectations for June. Fed officials keep a busy speaking schedule as they add details to their plans but remain consistent overall in their messaging.

Employment growth begins to peter out

After months of underestimation by analysts, employment growth finally started to slow its pace, with the Bureau of Labor Statistics announcing Friday that the U.S. economy added 209,000 jobs this June. This was below the expected 225,000 jobs that were forecasted and also marks the smallest monthly increase since December 2020. That said, an addition of over 200,000 jobs isn’t yet an indication of weakness in the job market, as it still more than doubles the amount needed to keep pace with the growth of the working-age population (~70,000-100,000 per month). The job additions came primarily from growth in the government and healthcare sectors. Additionally, June unemployment figures came in at expectations, declining slightly to 3.6%.

Markets took this news in stride, as it was accompanied by growth in average hourly earnings of 0.4% on a monthly basis and 4.4% compared to this time last year. This growth could indicate further inflationary pressures, but next week’s Consumer Price Index (CPI) report will be a better indicator.

June FOMC meeting minutes, Fed speakers add color to the path forward for rates

Last Wednesday brought the publication of the meeting minutes from the FOMC’s June session. The minutes are consistent with the language being used in recent press conferences by Fed officials, reiterating that most (if not all) of the Committee is expecting at least one additional rate hike in 2023. New York Federal Reserve President John Williams made clear in an interview Wednesday afternoon that there is “more work to do,” while Dallas Federal Reserve President Lorie Logan emphasized Thursday that the current state of the labor market indicates a need for “more-restrictive monetary policy.”

As of Friday morning, markets were overwhelmingly predicting a 25 basis point rate hike for the upcoming July FOMC meeting. However, only one rate hike is currently priced in for the rest of the year, despite the FOMC’s dot plot foreseeing two hikes in the coming months.

Looking ahead

This week brings the release of June CPI data on Wednesday, as well as June PPI data on Thursday. There will also be commentary from four different Fed presidents this week in addition to remarks from Fed Vice Chair Michael Barr on Monday.

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