Decent hiring in June, although decelerating

The U.S. economy added 206,000 jobs in June. However, it was notable that the report revised down previous estimates of job creation in May and April. According to the consensus estimate, the economy was expected to add 190,000 jobs in June from the 272,000 originally reported in May, a figure that was adjusted to 218,000. In addition, the April hiring increase was revised to 108,000 from 165,000. With these revisions, the June employment report showed a slowdown in the three-month moving average for hiring. The report also highlighted that the increase in new jobs was led by government, health care, social assistance, and construction. Conversely, several sectors experienced declines, including professional and business services and retail trade.

On the other hand, the unemployment rate, which had been expected to remain at 4.0% from May to June, rose to 4.1%, placing it at its highest point since October 2021. This level of unemployment is more aligned with the macroeconomic scenario recently shared by the Federal Reserve (Fed). That said, it is important to mention that, in June of last year, the unemployment rate stood at 3.6%.

As for wages, the average hourly wage increased 0.3% during the month, which implied an annual advance of 3.9%, both figures in line with estimates, although the latter below May’s 4.1% annually. The average workweek remained stable at 34.3 hours.

This deceleration in employment generation, and subject to confirmation by the end of the week that June inflation may have dropped to 3.1% annually from 3.3% according to the market forecast, should be factors that, in turn, could allow the Fed to implement a first 25 bp cut in the reference rate during the September 18 meeting. In this context, the consensus odds of seeing a cut stand at 73%, up from 46% about a month ago.

Monthly Change in Nonfarm Payroll – 3 month moving average

Source: Morningstar

Federal funds rate expectations for the September 18, 2024 meeting

Source: Morningstar – CME

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