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'From overheated to lukewarm': Wall Street reacts to the June jobs report

The US economy added more than 200,000 jobs in June, flashing signs of a slowdown in a labor market that had consistently surprised economists over the last year.

There were 209,000 nonfarm payrolls added to the US economy in June, data from the Bureau of Labor Statistics showed Friday; Wall Street economists expected job gains would total 225,000.

Friday’s report marked the first in 15 months that job creation came in below what Wall Street economists had expected. But it also marked the 30th straight month the US economy has created jobs.

Hourly wages also rose 4.4% over the same month last year, while the unemployment rate fell to 3.6%.

The data sent stocks drifting on Friday as investors made no change to expectations the Federal Reserve will raise rates again this month.

Many on Wall Street saw a drop in unemployment and elevated wage growth as bolstering the case for further rate hikes.

As for what the future holds, most commentators seem aligned on the notion the labor market is slowing.

As Nancy Vanden Houten, lead US economist at Oxford Economics, put in a note on Friday, the June jobs report showed a labor market cooling from "from overheated to lukewarm."

Nancy Vanden Houten, lead US economist, and Ryan Sweet, chief US economist, Oxford Economics:

"Job growth moderated more than expected in June and there were large downward revisions to payroll gains for the prior two months. However, the slowdown in job growth isn't enough to prevent a rate hike at the Federal Open Market Committee meeting later this month, particularly given the indicators showing that labor market conditions are slowly easing but remain tight. We will add a 25bps rate hike to our July baseline forecast."

Sarah House and Michael Pugliese, senior economists, Wells Fargo:

"Nonfarm payrolls have seemed to defy the gravity weighing down other gauges of the labor market over the past year. However, the June employment report suggests this dynamic has run its course. Nonfarm payrolls increased by 209K in June — a respectable gain in its own right — but below the Bloomberg consensus for the first time in 15 months. Revisions also pointed to recent job growth flying a little closer to Earth."

"...After a sharp divergence between establishment-based payrolls and the household measure of employment in May, the two aligned more closely in June. Household employment rose by 273K, which outpaced another modest rise in the labor force (+133K) and helped drive the unemployment rate back down to 3.6%. The unemployment rate has remained within the narrow range of 3.4-3.7% since March of last year when FOMC began its most aggressive tightening campaign since the early 1980s."

Michael Gapen, US economist, Bank of America:

"The June jobs report was mixed, with ongoing signs that employment growth is moderating, and employment gains are becoming more narrow. That said, at 209k and 273k, gains in establishment and household employment, respectively, continue to run well above the long-run rate of growth in the labor force, suggesting that the unemployment rate is more likely to move lower than higher. The Fed would prefer to see employment gains at 100k per month or less before having confidence that labor market imbalances are being removed. In addition, despite the strength in hourly earnings and upward move in weekly hours, total hours contributed negatively to labor market income in the second quarter."

Ellen Zentner, chief US economist, Morgan Stanley:

"June payrolls were below expectations, showing a slowdown in total and private payrolls. The report today continues to point to a soft landing for the economy and should keep market expectations for a September hike at bay."

Rick Rieder, chief investment officer of global fixed income, BlackRock:

"Many will point to relevant seasonal adjustment considerations and shifting patterns of sectoral demand for labor, but the full labor market picture is clearly still running at a decent level and shows little sign of rolling over, even as interest rates move higher and higher."

"In recent weeks, the perception of the Federal Reserve’s reaction function toward this stable employment picture and solid set of economic conditions (both of which are not contributing directly to a cooling of inflation) has been one of pursuing increasingly high interest rates to try to cool employment demand, wages and consequently the still sticky-high services inflation."

U.S. Federal Reserve Chairman Jerome Powell speaks during a news conference after the release of the Fed policy decision to keep interest rates unchanged, at the Federal Reserve in Washington, U.S,  June 14, 2023.  REUTERS/Kevin Lamarque
U.S. Federal Reserve Chairman Jerome Powell speaks during a news conference after the release of the Fed policy decision to keep interest rates unchanged, at the Federal Reserve in Washington, U.S, June 14, 2023. REUTERS/Kevin Lamarque (Kevin Lamarque / reuters)

Ben Laidler, global markets strategist, EToro:

"It's still a mixed blessing. These are pretty strong job numbers, and it will keep us out of recession, but also keep the Fed on the interest rate hiking front foot."

Eric Merlis, managing director and co-head of global markets, Citizens Bank:

"The US jobs report was positive and near expectations for June, but downward revisions of past monthly numbers may be a first crack in the market even though we advise clients to retain key employees in this competitive environment. The increase in average hourly earnings and hours worked should provide the Fed confidence to increase rates later this month as it tries to curb inflation."

Thomas Simmons, US economist, Jefferies:

"There is still a long way to go before the unemployment rate rises sufficiently, and enough slack accumulates in the labor market such that the Fed is confident that inflation is tracking back towards the 2% target.

"We expect that the Fed will look through the slowing increases in payrolls and that they will focus more on the household survey dynamics and the rebound in wage growth. This should put the Fed on track for another 25 bp rate hike at the upcoming meeting on July 25-26, with the door open for another rate hike as soon as the following meeting if we don't see more weakening in the labor and inflation data."

Chris Rupkey, managing director and chief economist, FWDBONDS:

"Net, net, there is a little more economic uncertainty in the labor market with private hiring slowing down. There is no recession out on the horizon though as employment falls in an economic downturn and the count of private jobs was still positive at 149,000 in June. We can hold the applause for Fed officials thinking they could take a meeting off. However, as apart from the labor market, everything everywhere in the economy is coming back to life and setting new records looking at business capital goods orders to home prices and sales, consumer confidence is rebounding and there is strength in the demand seen for cars and light trucks. It all tells the Fed they aren’t done yet if they are hoping their rate hikes would cool economic demand and lessen the upward pressure on wages. The less than expected jobs data won’t scuttle the Fed’s plans for a rate hike on July 26. Bet on it."

Stephanie Roth, senior economist, JPMorgan Private Bank:

"Initial reaction is better than what was feared yesterday, because the market doesn’t really want jobs to be overly strong because that really puts pressure on the Fed to hike even more. But it really was a firmer report, and it still was a print above 200,000, which likely puts the Fed hiking in July, and it still keeps the door open to more hikes after that."

"A couple of other things that I noticed from the print: There were some downward revisions of 100,000 to the prior two months, so it definitely was a little bit softer than expected. Except for the wage numbers, that beat by a little bit, so it’s important to keep that in mind."

Ian Shepherdson, chief economist, Pantheon Macroeconomics:

"Bottom line: A Fed willing to extrapolate the recent trends and take leading indicators — as well as the lags in policy — seriously, would not hike again. This is not that Fed. But the data will overtake the hawks by the end of the summer; we would be very surprised to see a further hike in September."

Andrew Hollenhorst, chief US economist, Citi:

"Job growth at 209k in June is slowing but remains at levels too strong to loosen the labor market. Consistent with that, the unemployment rate fell to 3.6% and wage growth picked up to 4.4%YoY. The still-tight labor market keeps a 25bp hike this month all but a done deal, in our view. We continue to expect a further 25bp hike in September with risks that the Fed seeks to deliver more hawkish guidance toward higher-for-longer rates in coming months."

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