Another winning week

Looking for cracks

The US added 372k new jobs in June as the labor market continues to remain strong despite everything else falling apart. Economists were expecting only 250k new jobs, so this is one of seemingly few areas right now where this country is exceeding expectations. That being said there are signs in this report of things slowing, which is to be expected given the looming recessionary fears in the market, making employers a bit more cautious about their hiring plans. The size of the labor force fell for the second time in the last three months, which is indicative of hiring slowing or jobs becoming more difficult to find. And the wage gains in this report came in at a 5.1% annual rate, which is the third straight month of this measure weakening. This would be indicative of labor demand weakening.

Moral of the story: The central bank is basically counting on the labor market weakening, which would lead to consumer demand weakening, which would lead to inflation hopefully weakening. So far, the labor market (and therefore consumer spending) hasn’t completely fallen apart but I’ve been watching any and every economic data point on this front like a hawk, because it’s going to be the true sign that winter (for those who aren’t GoT fans, read: recession) is coming. But for now, markets seem to be in a happy enough mood as we marked another winning week this week.

Not shocking news

The services sector in the country marked the 25th consecutive month of growth in June but continues to indicate that the rate of growth is slowing. The underlying employment index actually showed a contractionary environment and the backlog of orders continued to grow.

Moral of the story: The last 2 years has been a series of unfortunate events that started with COVID and continued with supply chain issues, materials shortages, labor shortages, inflation, and now a war in Ukraine. It’s not surprising that it’s all weighing on the economy.

Fed speak

We got to read the meeting minutes from June’s Federal Reserve meeting, when the committee raised interest rates by a whopping 0.75% – the largest rate hike since 1994. And it seems pretty obvious that we’re going to see another big increase in interest rates coming out of the central bank’s upcoming July meeting – another 0.5% or 0.75% increase seems pretty likely to help combat inflation.

Moral of the story: The central bank has been really far behind the curve in combating inflation, which they believed, up until very recently, to be quite transitory. When inflation becomes the topic du jour in most people’s daily lives, you know it’s becoming a problem. Though gas prices have started to creep down in the last month, prices are still notably higher for all goods and services across the board, which pretty negatively impacts real economic growth (aka growth that is adjusted for the increases in prices).   

Sign up for the weekly digest