How the Market Is Moving Due to July Job Report?
Is the Big Slowdown in Hiring Finally Here? June U.S. Jobs Report Not Expected to Show It
Stock Market Today: Wall Street Hits Records as a Slowing Economy Boosts Hopes for Lower Rates
The U.S. economy has been generating more jobs than expected this year, contrary to expert predictions. Businesses have been hiring robustly to support a solid economic expansion. However, with the June U.S. jobs report due Friday morning, there's speculation that a slowdown might be on the horizon.
The Forecast
Economists forecast that the economy will add 200,000 jobs in June, down from the preliminary 272,000 in May. Even with this predicted slowdown, such an increase would still be historically strong. Before the pandemic, the economy averaged 183,000 new jobs per month over a decade.
Doubts Creeping In
Some analysts are skeptical about the accuracy of the government's employment surveys since the pandemic. Richard Moody, chief economist at Regions Financial, notes that initial job estimates have often been revised downward. "We do not think the labor market to be as vibrant as implied by the headline job growth prints," Moody said.
Other indicators also suggest a potential slowdown in hiring. ADP reported the smallest increase in private-sector jobs in five months. The employment index of the ISM services index was negative for the fifth consecutive month in June. Additionally, the number of people receiving weekly jobless benefits has risen to a three-year high, indicating it’s taking longer for the unemployed to find new jobs.
Unemployment
The unemployment rate, another measure of labor market health, rose to 4% in May, the highest in 28 months, up from a low of 3.4% a little over a year earlier. In June, the unemployment rate is expected to remain steady at 4%.
However, the increase in the jobless rate might be misleading. The most significant rise has been among young workers aged 16 to 24, whose employment status is harder for the government to track. This group's unemployment rate jumped to 9.2% in May from 7.3% in January. Conversely, the unemployment rate for prime-age workers (25 to 54) remains low at 3.3%, the same as in January. As long as these prime-age workers are employed, the economy appears to be in decent shape.
Wages
Average hourly wages are projected to increase by 0.3% in June, still too high for the Federal Reserve's comfort. In a low-inflation environment, wages typically rise by 0.1% to 0.2% per month. However, the annual wage increase is expected to slow to 3.9% from 4.1%, potentially the lowest level in three years.
Fed Reaction
Federal Reserve officials hope for a cooling labor market to help control inflation. High demand for labor and resulting wage increases have complicated the Fed's efforts. If inflation metrics continue to trend lower, the Fed might consider cutting interest rates as early as September. A strong jobs report might not dissuade them, but a weaker one would support the case for a rate cut.
Stock Market Today: Wall Street Hits Records as a Slowing Economy Boosts Hopes for Lower Rates
Wall Street's rally continued on Wednesday as weak economic reports increased the likelihood of interest rate cuts. The S&P 500 rose 0.5%, setting an all-time high for the second consecutive day and the 33rd time this year. The Nasdaq composite added 0.9%, while the Dow Jones Industrial Average slipped 23 points, or 0.1%. Trading ended early ahead of the Fourth of July holiday.
Market Movers
Tesla helped boost the market, rising 6.5% after reporting a milder drop in sales than analysts feared. Nvidia, a key player in the AI sector, climbed 4.6%, bringing its year-to-date gain to 159%.
Bond Market Activity
Treasury yields fell after reports showed weaker-than-expected data on the job market and U.S. services companies. The yield on the 10-year Treasury dropped to 4.35% from 4.44%, a significant move for the bond market. The decline followed reports indicating contraction in real estate, retail trade, and other services industries in June, marking only the third such contraction in 49 months.
Economic Reports
Reports showed a slowing job market, with more workers applying for unemployment benefits last week than expected, although the number remains low historically. ADP also reported slower hiring outside the government.
Wall Street hopes the economy will slow just enough to control inflation without triggering a recession. The key upcoming report is the June nonfarm payroll report, which will provide a comprehensive update on employment trends.
The yield decline erased some recent recoveries, partly influenced by last week's political debate, which spurred traders to anticipate a potential Republican sweep in November. Such an outcome could lead to tax cuts and policies that might increase U.S. government debt.