New Jobs Report Means Timeline for Fed Rate Cuts Off the Table
The latest jobs report data gets weird depending on where you look but we can rule out interest rate cuts from the Fed anytime soon.
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The headline numbers were simply awesome: 272,000 jobs, 229,000 in the private sector, both beating expectations (and an even lower “whisper” number). Only 15,000 of downward revisions to the prior month. Unequivocally strong headline jobs.
Monthly and annual earnings ticked higher and were above expectations, and last month’s annual level was also bumped up. This signals that potential inflationary pressures remain and may even be rebounding.
Then things get “weird.” The unemployment rate ticked up to 4%. That occurred as the participation rate slipped back to 62.5% (tied for the lowest level since February 2023). That is because the household survey showed a job loss of 408,000, a difference of almost 700,000 between the two versions of this report. I still struggle to understand why we use the household for the unemployment rate, and treat that as valid, while ignoring the actual number of jobs created or lost in this report.
While not quite as extreme as last month, the birth/death model added 231,000. Basically all of the private payroll jobs were created by the birth/death model which has been a disproportionally large part of the report.
The other part of the household survey showed 625,000 full-time jobs were lost, while 286,000 part-time jobs were added. Another issue we’ve been struggling with (and mentioned in that earlier “exceptionalism” report) has been that so many of the jobs, according to the household report, have been part-time and that trend continued.
The establishment survey makes it look like an incredibly strong and healthy labor market. The household survey makes it look like a very weak labor market.
If we pick and choose the data to look at, it is the best of times (which seems in line with the stock market). If we look at other data, it is the worst of times (which seems to line up with sentiment surveys).
The establishment data was so strong, and the wages were so hot, that July is off the table for the Fed as a timeline for interest rate cuts. I still think September is too treacherous for the Fed to cut (with the election looming), so we might not get a rate cut until after the election, no matter how desperate Chairman Powell is to cut.
I think the path to higher yields has now been paved and we will follow it to higher yields, especially at the longer end. (I expect the Fed “dot plot” to reveal only two cuts this year, and a higher terminal rate, getting closer to 3% rather than 2.5%.)
My target on the 10-year is now 4.6%, so I would hold off adding any yield based products until we get a better entry point.
I hope you live in the “establishment” world, because that “household” world seems pretty darn bleak!
