The big economic news of the week was the +272K rise in Non-Farm Payrolls (NFP) released on June 7, exceeding expectations and causing a spike in interest rates due to lowered expectations for rate cuts. However, other labor market indicators paint a different picture, with notable layoffs across various industries, signaling a softening labor market. The Household Survey showed a loss of -408K jobs and a shrinking labor force, indicating an unhealthy labor market trend. Full-time jobs have been decreasing while part-time employment has been on the rise.
Despite the hot wage growth number, the reduction in the JOLTS voluntary quit rate and a decline in job openings in April point to a cooling labor market. ADP’s report for May showed the creation of +152K jobs, below the consensus estimate, with a decrease in small business employment. Full-time jobs have continued to disappear in 2024, replaced by part-time positions, indicating a shift in the employment cycle.
The volatility in GDP forecasts from various Regional Federal Reserve Banks reflects the uncertainty in the data, with some indicators showing strength, such as the NFP report, while others show weakness, like the decline in full-time jobs. The Fed’s hawkish stance, based on lagging indicators like the NFP report and wage growth, contrasts with other central banks globally, which have recently lowered rates due to falling inflation rates.
Inflation is trending down rapidly, with a notable decrease in used vehicle prices, leading to concerns about overly restrictive monetary policies. The Commercial Real Estate (CRE) sector continues to face challenges, with several significant foreclosures in recent months. The continued decline in CRE values is expected to have financial consequences by the end of the year.
Despite the anomaly in the strong Non-Farm Payroll number, the overall labor market remains weak, with the Household Survey showing a significant job loss and a decrease in full-time positions. Interest rates spiked due to lowered rate cut expectations, but other central banks have recognized weakening economic conditions and lowered rates. As inflation continues to fall and CRE foreclosures increase, the Fed may need to reconsider its stance on interest rates in light of changing economic conditions.
