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The U.S. added 187,000 jobs in July, less than expected and almost equal to the downwardly revised June level of 185,000. These two months are the smallest increases since December 2020. The unemployment rate fell to from 3.6% to 3.5%. Wages remained unchanged for both hourly and year-over-year measures, 0.4% and 4.4% respectively. This should not trouble the Federal Reserve too much since hours worked declined, which is artificially boosting the wage number. Employers tend to reduce hours as opposed to reducing staff ahead of a perceived economic downturn. The labor force participation rate also remained unchanged at 62.6%, well below pre-pandemic levels. The labor market is suffering from an imbalance of workers – not enough younger-aged workers to fill the gap left by over 55-year olds who have not returned post-pandemic. Considering all the variables in the monthly job report, it is reasonable to suggest the labor market is finding stability after the pandemic and post-pandemic shocks.
Key Indicators this Week
ISM – Consumers’ switch from goods to services this year continues to hamper manufacturing activity. The latest ISM Manufacturing Survey inched up in July but not enough to push the industry into expansion territory. At a reading of 46.4, July marked the ninth consecutive month below 50, which reflects contraction rather than expansion. Measures of new orders and production improved but remain contractionary. A gauge of exports fell to the lowest level this year as demand from overseas remains weak. With demand for goods continuing to decline, factories are beginning to reduce headcount, pulling the employment sub-index down almost four points to the lowest level in three years. Prices paid rose but remain near the lowest level since 2022.
Post-FOMC Comments – This week, Federal Reserve officials began suggesting where interest rates are headed. First up was FRB of Minneapolis President Neel Kashkari, who believes the chance of a recession is low and the inflation outlook in the U.S. is “quite positive,” though the central bank’s aggressive monetary tightening campaign will likely result in some job losses and slower growth. Second up was the newest Fed President, Austan Goolsbee, FRB Chicago. Goolsbee called it “fabulous news” that recent data is showing slower U.S. inflation but admits he hasn’t made up his mind yet about a rate move in September. He echoed Federal Reserve Chair Jerome Powell’s opinion that the Fed will have to “play it by ear” on whether the policy rate is sufficiently restrictive. Atlanta Fed President Raphael Bostick expressed some concern that the Fed might overtighten in its effort to restore inflation to 2% but “things to date seem to be evolving in a way that’s consistent with the notion of an orderly slowdown.” Bostic, who is not a voting member on the FOMC this year, doesn’t expect a rate hike in September.
Market Moves – While credit union managers typically focus on the shorter end of the yield curve, the actions in the Treasury market this week bear notice. The yield curve experienced a “bear flattening” move, whereby longer-dated yields moved higher on bearish, or economically negative, news. This produced a steeper (less inverted yield curve). Both the 10- and 30-year Treasury yields rose to the highest levels since November 2022, pushing the curve to the steepest since May, -69 basis points. The shift in strategy was brought on by strong job data, larger Treasury issuance on long dated bonds and Fitch Ratings downgrade of the U.S. debt rating from AAA to AA+.
Sarina Freedland – Senior Investment Officer
Although this information has been obtained from sources we believe to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. This is for informational purposed only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. All herein listed securities are subject to availability and change in price. Past performance is not indicative of future results. Changes in any assumption may have a material effect on projected results.
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