Thursday sees an early release of June NFP figures as the US is closed for a holiday on Friday. The consensus is for continued weakness in the jobs numbers. But, unless there is a major shift in the data trends, markets seem to be generally expecting the Fed’s rate outlook to stay the same. But, that probably means that the dollar will also continue to weaken.
Traders are probably remembering what happened last year, when the Fed cut rates by 50 bps after the summer. Fed Chair Jerome Powell later admitted that it was because of the sudden drop in jobs numbers in July, and that the Federal Reserve was playing “catch up” to the data. So, markets might be particularly sensitive to signs of labor force weakness in the June and July figures as that could change the outlook for the Fed.
What Moves the Needle
Fed officials have largely been sticking to the message that the US economy is stable, which includes a solid jobs market. That means the worry remains around the potential for tariffs to cause inflation to rise in the near term. Fed Chair Jerome Powell repeated this message before Congress just last week, as a matter of fact.
However, traders have been getting a little nervous about the labor market. That’s because continuing jobless claims recently reached the highest level since late 2021, in the middle of the pandemic. More and more Americans are finding it difficult to get a job, which is often a sign of economic stagnation if not an outright dip lower. And with the recent Q1 GDP final report being revised lower, the market might be particularly sensitive to bad data.
Some Distortions in the Figures
Government policy can also have an important impact on June’s NFP numbers. For one, there is DOGE, which has contributed to government layoffs in an effort to trim federal spending. However, analysts believe that the DOGE impact will be lower this time around.
The migration issue could have a larger influence, however, since the BLS doesn’t take into account residency status when it conducts the NFP survey. Basically, it asks employers how many people are working, and compares that to the prior month to see if there has been a gain. The step up in deportations could mean that fewer people are working, as well as the drop in immigration could mean fewer people are taking up jobs.
What the Market Cares About
The unemployment rate, however, is calculated using a different methodology and based on the number of people seeking unemployment benefits. To get such benefits, a person must be a legal resident. That might explain why the unemployment rate has remained fairly steady despite fluctuations in the NFP number. And it’s this jobless rate that the Fed pays attention to for policy.
June US NPF are expected to drop to 110K from the 139K reported in May. That was already below the 159K average for the last year. The unemployment rate is expected to tick up to 4.3% from 4.2%, while average hourly earnings are projected to remain unchanged at 3.9%.
