Wall Street’s fervent hopes and prayers for rate-cut ammo were
not fulfilled.
Wall Street, clamoring for three to four rate cuts this year, was hoping
and praying fervently for a lousy jobs report that would “force” the Fed to
cut rates. Those hopes and prayers were not fulfilled when the Labor
Department released its data trove for
June this morning, the last jobs report before the next Fed meeting. Stocks
instantly swooned. And the 10-year Treasury yield jumped by 10 basis points
from 1.95% to 2.05%!
The number of nonfarm employees increased by 224,000 in June to 151.3
million. The May and April increases were revised lower to 72,000 and
216,000. The June increase was in the upper part of the multi-year range:
It is due to this jagged-teeth data in the chart above that the Fed
doesn’t focus on the movements of one month. And it is why Fed Chair Jerome
Powell said during the last FOMC press conference that the Fed is looking at
the three-month moving average of the monthly employment report, when he
countered the view, propagated by rate-cut mongers on Wall Street, that the
job market had suddenly gone to heck, from a strong April to a dreary May.
But the monthly ups and downs are not indicative of trends in the job market.
He pointed out that the three-month moving average, which irons out the
monthly ups and downs, had remained fairly strong.
When these surveys go out to employers – and I received one of them too –
employers have some time to respond, and then it takes the BLS some time to
put the data together. So that “June” employment data wasn’t even for June.
But it was simply the latest reading. And the monthly ups and downs are laden
with statistical noise. The vast US job market, unless a sudden catastrophe
happens, doesn’t turn around on a dime.
So the Fed looks at the three-month moving average for trends. As Powell
pointed out during the press conference, the three-month moving average of
employment increases through May had been above 150,000 – fairly decent –
though the increases in hiring had slowed somewhat. With the current reading
in June, and the revisions for May and April, the three-month moving average
ticked up to an increase of 171,000 employees per month:
Over the past 12 months through June, the number of nonfarm employees
increased by 2.3 million persons. That 12-month increase was in the middle of
the range since mid-2011, but down a little from the above-average increases
in the second half last year.
This slower increase in hiring has been attributed to just how hard it is
getting for employers to hire new people without jacking up wages. Employers
are very reluctant to raise their labor costs by even small percentages,
because for many of them, labor costs are over half of their total costs, and
raising wages has an instant and big impact on profits.
Wages rose 3.1% over the 12-month period, according to the BLS data today.
From the Great Recession through mid-2018, wage increases by this measure had
been consistently below 3%. In July 2018, the 12-month increase hit 3% for
the first time, and these increases have consistently exceeded 3% since then,
a sign that employers are finally ceding some ground to the pressures in the
labor market.
The narrowest definition of the unemployment rate, which is based on
household surveys not employer surveys, “was little changed at 3.7 percent,”
as the BLS put it, after ticking up from 3.6% in May and April, as 300,000
people entered the labor force looking for work and therefore counting as
unemployed. The rate in May and April had been the lowest since the 1960s.
And this measure is down from 4.0% in June last year.
The job market had been crappy for workers since about 2001, with big
swings in crappiness including a dive into labor-market hell during the Great
Recession. But as crappy as it still is for many workers and those looking
for work in some areas, this is the tightest and least-crappy overall labor
market since 2001, and it is not suddenly spiraling down, and it is not
“forcing” the Fed to cut rates.
The inflation index the Fed anointed as its yardstick booked two big
jumps in a row: May near the top of the range since 2010; April, third
largest jump since 2010. Read… Markets
Might Hafta Grapple with “Patient”: Fed Rate Cut in July After This
Inflation?
Enjoy reading WOLF STREET and want to support it? Using ad
blockers – I totally get why – but want to support the site? You can donate
“beer money.” I appreciate it immensely. Click on the beer mug to find out how:
Would you like to be notified via email when WOLF STREET
publishes a new article? Sign up here.
