June jobs report: Consistent with a soft landing

Market response

July 5, 2024 | 3 min read
Seema Shah
Chief Global Strategist
June’s jobs report is broadly consistent with the soft landing narrative. Monthly payrolls growth weakened slightly on the month, and there were downward revisions to previous months, but overall, the numbers remained fairly solid, and wage growth softened in line with expectations. The one fly in the ointment was an unexpected increase in the unemployment rate to 4.1%, which may prompt a twinge of concern about the direction of the U.S. economy. For the Federal Reserve, June’s report firms up the case for a September cut.

Report details

  • Total non-farm payrolls increased by 206,000 in June, down from 218,000 last month, which itself was downwardly revised from 272,000. In fact, downward revisions to the previous two months' jobs reports subtracted 111,000 jobs from original estimates.
  • Today’s payrolls number was a slight upside surprise. Notably, although the three-month moving average has dropped to 177,000, it remains above the 150,000 threshold which, pre- COVID, would have been considered consistent with a robust U.S. economy.
  • The more significant surprise was the increase in the unemployment rate from 4.0% to 4.1%—the highest level since 2021. Although the rise resulted from an increase in labor participation rather than a drop in jobs, it will not go unnoticed that the Sahm recession rule is close to being triggered. (The Sahm rule states that historically, a 0.5% increase in three- month average unemployment over 12 months indicates that recession has begun.) It's worth noting, however, that most recession predictors have been triggered at some point in the past two years and have all been incorrect.
  • Monthly average hourly earnings growth dipped from 0.4% in May to 0.3% in June, which was in line with expectations. This brought the annual growth rate down from 4.1% to 3.9%.

Policy outlook

The jobs report shows that the labor market is returning to balance and wage growth is moderating in response, falling back in line with most other labor market indicators that have been softening in recent months. While this is good news for the Fed regarding price pressures, the central bank will also be alert to the risk that the unemployment rate starts to rise more rapidly from here. A September rate cut is looking increasingly likely.

Macro views
Disclosure

Investing involves risk, including possible loss of principal. Past performance is no guarantee of future results.

Views and opinions expressed are accurate as of the date of this communication and are subject to change without notice. This material may contain ‘forward-looking’ information that is not purely historical in nature and may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.

The information in the article should not be construed as investment advice or a recommendation for the purchase or sale of any security. The general information it contains does not take account of any investor’s investment objectives, particular needs, or financial situation.

3687388
About the author