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The June US labour market report painted a picture of a labour market that continues to gradually loosen, and normalise.
With headline nonfarm payrolls growth moderating to a marginally better-than-forecast +206k, as unemployment unexpectedly ticked higher to 4.1%, albeit on a firming in participation to 62.6%, making this less of a concern than it otherwise would be.
Meanwhile, average hourly earnings growth cooled a touch to 0.3% MoM, in line with expectations, and 3.9% YoY, also in line with expectations. The net -111k revision to the prior 2 months of data also supports the normalisation theme.
“That said, on the whole, the policy implications of the today’s data are likely to be relatively limited, particularly with the inflation side of the FOMC’s dual mandate continuing to take precedence.
Obtaining greater ‘confidence’ in a return towards the 2% target remains the primary condition that must be met before a cut is delivered, though ‘unexpected’ labour market softness may elicit a policy response in advance of this. I continue to pencil in September for the first 25bp cut to be delivered.
In any case, there remains a clear desire among FOMC members to deliver a cut, likely sooner rather than later, hence the ‘Fed put’ remains forceful, and flexible, in nature. This should, in turn, continue to support risk assets, with the path of least resistance for equities continuing to point to the upside, leaving dips remaining shallow, albeit with stocks now needing to navigate the looming risk of earnings season, kicking off next Friday.
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