Top of the Morning: June Jobs Report & macro update

Welcome back to Top of the Morning on the UBS Market Moves podcast channel. For today, we will spend some time digging into the June jobs data, which did release just a couple of hours ago. Joining me here on the line for today's episode, glad to welcome back from the UBS Chief Investment Office, Andrew Dubinsky, Senior U.S.

Economist. Andrew, as always, thank you for joining us for these timely jobs report conversations. Maybe let's begin this morning with the actual data.

Curious to hear about your overall reflections and how the data came in, Andrew, relative to your expectations. Yeah, payroll growth was a modest disappointment versus my expectations and the consensus view. It's 57,000 jobs, that's a bit below the 113,000 consensus, and it included negative revisions that brought the three-month moving average down to 111,000.

That was before the revisions, the three-month rate was a pretty strong, I'll call it even perhaps hot, 188,000. I think the key message here is it's a softer report, but not bad news in any sense because we're right around a demographic break-even estimate of job growth to keep unemployment rates stable. It does definitely reduce some overheating concerns that we're building when we're looking at the recent months where the job growth numbers just seem pretty hard to sustain.

Looking at the household survey, you did see the unemployment rate tick down to 4.2%, and normally that would indicate that there's a reduction in slack in the economy, but when we look at the details, it actually gives a much softer message. As I jump out right away, it's a participation rate fell three-tenths, and a really good cross-check on the unemployment rate is the employment-to-population ratio, and that fell as well. That suggests that the labor market really isn't tightening up.

If anything, there's perhaps some building slack in those other measures, and this should reduce Fed concerns that the labor market is overheating in some way where cost pressures from the labor market could be an issue. So, I would say the market reaction matches that idea that perhaps the overheating from the labor market was a risk that's been toned down. So, Andrew, after assessing this latest jobs report, how would you characterize the overall health of the U.S. labor market?

Yeah, I would describe it as being fairly solid. You have a three-month job growth rate over $100,000, and as I mentioned, that should be more than enough to keep the unemployment rate stable for now if it stays there. My expectation is it does tilt down in the second half of the year as we get a slower growth rate in GDP.

Other things that would suggest that things go stabilized would be the openings data, which I think has generally gone sideways when we look across different measures. The official JOLTS data, which came out this week, generally showed that, and we have other data from Indeed, which is maybe giving a little softer tone, but averaging across those signals, job openings look like they're pretty stable. That's better than the downtrend that they had been in recent years.

Then the Conference Board data, which asks people about how plentiful jobs are, has a modest weakening trend, but not too concerning. So, I would say overall, solid. You have wage growth, which is about 3.5%, or maybe a bit lower than other measures.

So, that's enough to sustain a decent amount of spending, but maybe not at the current consumption year-over-year rate. So, some deceleration in spending probably is expected, given how much labor income we're generating. So, solid, but nothing to generate gangbuster GDP growth in the second half.

Okay. So, broadening out a bit, if we step away from jobs data, Andrew, any other recent or upcoming macro data points of interest on your radar? Yeah, I think the thing to focus on next week is the Fed Minutes.

That is going to be something that gives us a little bit more detail on the debate from the June meeting. So, if you remember, the June meeting had a pretty hawkish conclusion, but Chair Warsh's press conference really didn't give us a lot of details on the debate that was happening there. So, the Minutes should fill out some of the discussion that was happening there, maybe just a little bit more sense of the numbers and just the signposts that people have in mind, possibly for changing policy in either direction.

So, that is next week. And then I think this employment data really simplifies or clarifies that we need to really just focus on the inflation data. So, we have CPI data out in two weeks.

And the expectation is, given the decline in gasoline prices that we've had, that we should see headline CPI fall back into the 3% territory. So, it was solidly over 4% in May. And so, for June, we should see that tick back down, maybe the three and three quarters percent.

And also, importantly, we need to look at, obviously, those core trends. And do we see more confirmation that the tariff effects and goods look like they're subsiding? So, inflation is really driving the policy discourse, and that's going to be coming out in a couple of weeks.

Well, Andrew, very timely insights today. Thank you very much for dropping by Top of the Morning, keeping our listeners, our clients informed. I wish you a nice, long 4th of July weekend.

And we look forward to having you back here on Top of the Morning again soon. No, I look forward to that, Dan. and brokerage services. Investment advisory services and brokerage services are separate and distinct, differ in material ways, and are governed by different laws and separate arrangements.

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Transcribed by https://otter.ai