The latest jobs and employment numbers were released this morning and showed what might be seen as the first visible “cracks” in the overall labor market. The June data showed that nonfarm payrolls increased 209,000 vs. Dow Jones estimates of 240,000. The unemployment rate held steady at 3.6%, inline with expectations. Government hiring led the job gains followed by health care, social assistance, and construction. Over the past few years, hospitality and leisure services have been the hot, growth sector but that has cooled off significantly. Speaking from my own household perspective, with a son working in the food service industry, overstaffing is widespread and problematic right now. The new job growth led by Government hiring at the state and local levels will likely be temporary in my view as the work from home stance begins to shift. Many workers will simply refuse to return or decide to retire, and those roles are likely to be filled quickly. The interesting piece of data I will be watching in the months ahead is the construction and manufacturing segments. Will the growth in those areas pick up pace as other areas cool or are we starting to see a new downward trend forming?
A bright spot was the growth in wages. For June, wages were 4.4% higher on a year-over-year basis. This number was higher than expectations and continues to help bolster consumers in their battle of inflation and spending habits. Higher wages, in general, coupled with lower mortgage payments, have helped prop up consumer spending in our view. This tug of war cannot last and something will undoubtedly break. This leads us to postulate on what the Federal Reserve will do at their next meeting scheduled for July 25-26th. Chairman Powell has made it very clear that there is more work to be done to bring down inflation. The jobs data is a big part of that “work to be done” motto and an economic indicator the Fed follows closely. While we may have seen a slight crack in the momentum, adding 209,000 new jobs is nothing to brush off. That is still a significant number on any level historically.
Next week will show us the CPI (Consumer Price Index) and inflation readings from July. The expectations are that we will see a modest continuation of lower levels, particularly when we compare them on a year-over-year basis. If those metrics show anything other than a continued easing, then there will be little for the Fed to debate on next steps. The timing will be the biggest discussion point. The Fed does not meet in August, so if they do nothing in July then several months will have passed before another window of action is available. To note, they have the ability to call emergency meetings and move quickly as needed. Up until the last few weeks, the consensus had been that a pause was likely in the cards until the Fall. Many economists believe the Fed has done enough at this point to achieve their goals and that more time is needed for the dust to settle further. I always point to our financial markets as a solid barometer of what is likely to occur. Our friendly market sentiment indicator the VIX has moved higher this week, coming off the recent low level of 13ish and moving into the 15-16 range. This is still within the “normal” range but indicates some volatility and uncertainty is creeping back in.
As the summer heat sets in and we find ourselves seeking a cool resting place, the fears of the AC “breaking” are ever present. It is inevitable and has happened to all of us at one point in time. It’s never fun, we might suffer slightly, but we live. The Fed reminds me of the HVAC tech performing their annual maintenance visits. Left unchecked and properly maintained, the system will break, it is a near certainty. But don’t you find it funny that often the systems seem to fail right after these “maintenance” visits? Yes, it is important to stay on top of these things but as the old saying goes “if it ain’t broke, don’t fix it!”. I’m wondering if that’s where we sit today.
Have a wonderful weekend!
https://www.cnbc.com/2023/07/05/stock-market-today-live-updates.html
https://www.cnbc.com/2023/07/07/jobs-report-june-2023-.html
https://www.cnbc.com/2023/07/07/heres-where-the-jobs-are-for-june-2023-in-one-chart.html
Christopher E. Wasson, CFP®
President
Mosaic Asset Partners, LLC
1122 Kenilworth Drive, Suite 310
Towson, MD 21204
410.821.0089 fax 410.821.5993
MosaicAssetPartners.com
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