June Jobs Report and July FOMC Meeting

Payrolls = 209,000 :: Unemployment rate = 3.6%

Nonfarm payrolls increased by 209,000 in June and the unemployment rate slipped to 3.6%. Since the monthly jobs figure is volatile, we look at the 3-month moving average (3MMA) of job gains. The report noted that in June “the labor force participation rate was 62.6 percent for the fourth consecutive month, and the employment-population ratio, at 60.3 percent, was unchanged over the month.” Over the past fifteen months, the 3MMA pace of job growth has decelerated from 524,000 in April 2022 to 244,000 in June 2023. In our view, the pace of job growth will continue to decelerate.

Nonfarm Payrolls Growth:

1-month: 209,000

3-months: 244,000

6-months: 278,167

12-months: 316,000

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The 3.6% unemployment rate in June keeps the rate within its recent range. The unemployment rate has been remarkably stable over the past sixteen months oscillating between 3.4% and 3.8%, near the lowest levels on record. The unemployment rate is likely to move higher by year-end.

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The Federal Open Market Committee (FOMC) convenes on July 25th and 26th. The combination of a strong labor market and too-high inflation makes this meeting’s decision easy. A 25 basis point rate hike is expected. A quarter-point rate hike will lift the federal funds rate to a target range of 5.25% to 5.5%. The latest FedWatch indicates a greater than 90% probability of a rate hike in July, but skepticism remains regarding additional hikes beyond that level. As of this writing, we have no reason to doubt the Fed’s forecast for at least two more rate hikes this year, lifting the fed funds rate above 5.5%.

The minutes from the June FOMC meeting indicate that most members agree that additional policy tightening will be necessary at upcoming Fed meetings.

In discussing the policy outlook, all participants continued to anticipate that, with inflation still well above the Committee's 2 percent goal and the labor market remaining very tight, maintaining a restrictive stance for monetary policy would be appropriate to achieve the Committee's objectives. Almost all participants noted that in their economic projections that they judged that additional increases in the target federal funds rate during 2023 would be appropriate.

FOMC staff provided this update to their economic outlook:

Staff Economic Outlook
The economic forecast prepared by the staff for the June FOMC meeting continued to assume that the effects of the expected further tightening in bank credit conditions, amid already tight financial conditions, would lead to a mild recession starting later this year, followed by a moderately paced recovery. Real GDP was projected to decelerate in the current quarter and the next one before declining modestly in both the fourth quarter of this year and first quarter of next year.