Jobs and Interest Rates

Susan Jung |

The market, and DWM, expect a rate cut this year. The economy is slowing and the Federal Reserve has changed their language to reflect this perception. The key metric to watch for is job creation and job growth.  It is the number we watch very carefully. A recent article by CNBC outlined what expectations are for job growth.

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Economists expect to see 165,000 jobs were added in June, after a stunningly low 75,000 payrolls added in May, according to Dow Jones. But a soft ADP report Wednesday, with just 102,000 new private payrolls dampened expectations for the government's June payroll report, which will be released Friday.

The jobs report is also seen as a major input for the Fed to consider when it meets at the end of the month, and if there is more weakness than expected in job growth or wages data, it could be another catalyst for an expected interest rate cut. In the June report, the unemployment rate is expected to hold steady at 3.6%, while average hourly wages are expected to increase by 0.3%, or 3.2% year over year, up from 3.1% in May.

"We've known for a while with a very low unemployment rate that we're running out of workers. Payroll gains are going to slow at some point. I don't know if this is the point or not. I don't' trust the ADP number. I don't know if the day of seeing 200,000 job numbers is over," said Chris Rupkey, chief financial economist at MUFG Union Bank.

ADP is not seen as a strong indicator for the government's employment report, but in May, its initial report of just 27,000, later revised to 40,000 jobs, sent a strong message about a hiring slowdown that later showed up in the government's weak May data.

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Source: July 3, 2019; CNBC.com article by Patti Domm
https://www.cnbc.com/2019/07/03/jobs-data-could-show-slowing-trend-and-prompt-the-fed-to-cut-rates.html

We expect softness will begin to become a trend. Companies are already warning about future earnings slowdowns in anticipation of a slower economy and the global trade war is having an impact on employment. The tax cuts from two years ago are mostly filtered through the system by now and we think a slowdown is   likely.

As always, we will make adjustments based on current than expected data. You can be sure we’re watching jobs very carefully and that data regarding employment will factor into our investment decisions.

Any questions let us know. Happy to help anytime!

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