Investors this morning will be looking at the Labor Department’s view of how much hiring took place in June and what it says about the temperature of the overall economy.
FOMC policymakers will also be watching the data, with Fed Chair Jay Powell recently calling the labor market “unsustainably high.” By tapping the economic brakes with restrictive policy, Powell hopes inflationary pressures will subside, while reducing risks of a wage-price spiral that fueled double-digit inflation in the 1970/80s.
According to consensus estimates, the NFP report (released at 8:30 a.m ET) is expected to reveal 268,000 new jobs for June, down from the 390,000 jobs added in May.
Bigger picture: The CPI report has dominated non-farm payrolls over much of the past year as inflation became a much more important theme for the economy. However, with recession fears clouding the outlook and the yield curve inverting this week, the jobs report is set to regain its prominence. As markets “increasingly focus on risks of a steeper growth slowdown, employment figures will likely be the most important activity data released each month,” wrote Citi economists Veronica Clark and Andrew Hollenhorst.
Other important items in the report will include the unemployment rate, which likely remained unchanged at 3.6%, and average hourly earnings, which are expected to gain 0.3%. Many are also hoping to get greater clarity following a mixed bag of recent employment data that saw 32,500 job cuts announced in June, up from 20,700 in the previous month. At the same time, businesses are scrambling for workers, with 11.3M job openings at the end of May, translating into 1.9 available jobs for every unemployed person.
Staying hawkish: “It’s very, very difficult to get a recession with so many job openings,” noted Jonathan Golub, chief U.S. equity strategist at Credit Suisse. “In reality, a recession, more than anything else, is a collapse in the labor market, a spike in the unemployment rate, and right now, we’re not seeing anything that looks like that at all.” That means the Fed is likely to tighten policy by another 75 basis points this month – barring a really bad NFP number – which could push it to lean towards a 50 bps hike instead