June U.S. Jobs Report: Continued strength lowers expectations of Fed cut in July

  • As all eyes are on the Federal Reserve and
    their anticipated actions in the upcoming July, September and December
    meetings, including President Trump’s. This monthly job report has become one
    of the most observed monthly economic indicators. Consequently, strength in
    June’s hiring suggests some analysts may have rushed to push for a case of
    cutting the interest rates.
  • However, while the markets have been
    aggressive in trying to drive Federal Reserve’s actions, Federal Reserve is in
    a precarious position at the moment. Fed Chair Powell has suggested that
    deteriorating inflation expectations and slowing global growth may provide a
    case for cutting the rates, though the Fed does not want to appear to be bowing
    to short-term political interests. Further, premature rate cuts may leave
    Federal Reserve with fewer tools when the economy indeed hits the brake. Analysts
    are sticking with the 25 basis points cut expectation for the July FOMC
  • In terms of housing, however, it is not clear
    how much further decline in rates would boost the demand. The 30-year fixed mortgage rates have been
    oscillating about 70 to 100 basis points below this time last year, but the
    number of homes sold in California still trends below last year.
  • In looking at the BLS report, the unemployment
    rate inched up to 3.7 percent as 2019 graduates and summer workers entered the
    labor force. Consequently, wage growth also also posted a relatively weaker
    monthly growth of 0.2 percent though it is still up 3.1 percent from last year.
    Again, these numbers suggest that there is a little risk of inflation which is
    actually one of the primary reasons Federal Reserve would cut the rate as they
    are concerned with lack of inflationary pressures amid lowest unemployment rate
    in the last 50 years. 
  • Further, while the rate of job growth has
    generally slowed from last year, as anticipated, it’s not very clear if trade
    uncertainty has started to weigh on key trade-related sectors, such as manufacturing
    and transportation & warehousing, which added a combined 41,000 jobs, an uptick
    from the trend in the last few months. However, while trade uncertainty is likely
    to weigh most heavily on investment spending, uncertainty in general is never
    seen as a positive when comes to businesses’ hiring plans. 
  • Notable gains continue in professional and business
    services which added 51,000 jobs, and health care, up 35,000 jobs, while retail
    continued on the losing streak with a 5,800-jobs cut in June.
  • According to a new CompTIA
    , the information-technology sector added 13,500 jobs in June, with
    solid gains in technology services, custom software development and computer
    systems design, up 7,200 jobs, and computer and electronics products
    manufacturing, up 6,500. The bulk of the new hiring in manufacturing occurred
    in two areas, electronic instruments and semiconductors and electronic
    components. Software and application developers continue to be the most
    in-demand occupation companies are looking to hire, with 83,700 job postings in