The stock market may continue to be pressured by the potential for adverse developments affecting the US-Iran agreement, consolidation in the tech sector, and fear of a Fed rate hike at some point. Last week's May PCE Deflator data did not allay this fear. So, this week's June Employment Report contains the next set of evidence that could argue against a rate hike (or at least a hint of one coming) at the July 28-29 FOMC Meeting. The evidence would presumably have to show a significant softening in labor market conditions to allay market fears.
The softening may have to be broader than a slowing in Nonfarm Payrolls. Consensus looks for Payrolls to slow to +114k m/m from +172k in May. The Claims data support a slowdown expectation, as Continuing Claims rose between the May and June Payroll Survey Weeks (see table below, which shows the inverted change between survey weeks). The consensus estimate, however, is above the 50-60k pace consistent with Population Growth, so jobs would still be growing sufficiently to satisfy Fed Chair Warsh. He had indicated at his post-FOMC news conference that job growth close to population growth shows a satisfactory labor market.
The Employment Report may need to show both an increase in the Unemployment Rate, perhaps a large increase to 4.5% from 4.3%, as well as soft Average Hourly Earnings to convince Fed officials that a rate hike would be undesirable. Consensus, however, looks for a steady 4.3% Unemployment Rate and a trend-like 0.3% m/m increase in Average Hourly Earnings in June. The Insured Unemployment Rate, based on Continuing Claims, does not suggest a significant change in the official Unemployment Rate in June.
The May PCE Deflator remained high, with Total up 0.4% m/m and Core up 0.3%. The y/y rose for both. The Trimmed Deflator, Warsh's favorite measure of inflation, worsened, as well (see table below).
Private Payrolls (m/m change, 000s)
ADP Estimate First-Print BLS Latest-Print BLS Continuing Claims *
April 25 62 167 133 14
May 37 140 69 -74
Jun -33 74 -27 -57
Jul 104 83 77 18
Aug 54 38 -4 2
Sep -32 119 104 28
Oct 42 na 1 -41
Nov -32 69 41 14
Dec 41 37 48 30
Jan 26 22 172 146 94
Feb 63 -86 -148 -14
Mar 62 186 202 6
Apr 109 123 177 40
May 122 120 na -9
Jun na na na -36
* the inverted change in Continuing Claims between Payroll Survey Weeks, 000s
Dallas Fed Trimmed PCE Deflator
One-month PCE inflation, annual rate
| 25-Dec | 26-Jan | 26-Feb | 26-Mar | 26-Apr | 26-May | |
| PCE | 4.0 | 4.3 | 4.9 | 8.3 | 5.0 | 5.5 |
| PCE ex F&E | 4.0 | 5.5 | 4.8 | 3.6 | 3.0 | 3.9 |
| Trimmed mean | 2.2 | 2.7 | 2.0 | 2.9 | 2.4 | 2.8 |
Six-month PCE inflation, annual rate
| 25-Dec | 26-Jan | 26-Feb | 26-Mar | 26-Apr | 26-May | |
| PCE | 2.9 | 3.3 | 3.6 | 4.4 | 4.9 | 5.3 |
| PCE ex F&E | 2.8 | 3.2 | 3.6 | 3.8 | 3.8 | 4.1 |
| Trimmed mean | 2.1 | 2.2 | 2.0 | 2.2 | 2.3 | 2.5 |
12-month PCE inflation
| 25-Dec | 26-Jan | 26-Feb | 26-Mar | 26-Apr | 26-May | |
| PCE | 2.9 | 2.9 | 2.9 | 3.5 | 3.8 | 4.1 |
| PCE ex F&E | 3.0 | 3.1 | 3.0 | 3.3 | 3.3 | 3.4 |
| Trimmed mean | 2.4 | 2.4 | 2.3 | 2.4 | 2.3 | 2.4 |
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