Markets Dip on Positive Jobs Data, Which Raises New Fears of Fed Interest Rate Hikes by Nick Rummell
July 7, 2023
Introduction:
MANHATTAN (Courthouse News) — Disparate job reports this week caused investors to cautiously retreat from last week’s rally, as Wall Street worries the Federal Reserve may resume its process of hiking rates later this month.
Failing to compound last week’s gains, all three equities dropped earlier in the week, though they reclaimed some ground on Friday. By the week’s closing, the Dow Jones Industrial Average declined 642 points, while the S&P 500 and Nasdaq fell 51 points and 127 points, respectively.
On Friday, the Bureau of Labor Statistics’ monthly jobs report showed that nonfarm employment increased by 209,000 last month, slightly less than expected and the smallest monthly jobs gain since late 2020. Wage growth continued its upwards path, gaining 0.4% last month and unemployment sits once against at 3.6%.
Among individual sectors, healthcare and government saw the biggest increases, of 65,000 and 60,000 jobs, respectively. Retail lost just over 11,000 jobs, and temporary employment also fell by 12,000 jobs.
The numbers were disappointing, especially compared with another employment report earlier in the week. Worse still, the payroll numbers for May and April were revised downward by 110,000 jobs.
Inflation rose just 0.2% in June, less than expected as consumers get a break from price increases
Source: CNBC
Inflation fell to its lowest annual rate in more than two years during June, the product both of some deceleration in costs and easy comparisons against a time when price increases were running at a more than 40-year high.
The consumer price index increased 3% from a year ago, which is the lowest level since March 2021. On a monthly basis, the index, which measures a broad swath of prices for goods and services, rose 0.2%. That compared to Dow Jones estimates for respective increases of 3.1% and 0.3%.
Stripping out volatile food and energy prices, core CPI rose 4.8% from a year ago and 0.2% on a monthly basis. Consensus estimates expected respective increases of 5% and 0.3%.
In sum, the numbers could give the Federal Reserve some breathing room as it looks to bring down inflation that was running around a 9% annual rate at this time in 2022, the highest November 1981.
June wholesale prices rise less than expected in another encouraging inflation report
Source: CNBC
The producer price index for June had a smaller than expected increase, the Labor Department reported Thursday, in the latest sign that inflation is calming in the United States.
The PPI for final demand rose 0.1%. Economists surveyed by Dow Jones were expecting a rise of 0.2%. PPI rose 0.1% when excluding food, energy and trade services, which was in line with expectations.
The producer report comes a day after the consumer price index showed a smaller-than-expected increase. The CPI rose just 3% year over year, its lowest since March 2021, bolstering hopes for investors that the Federal Reserve is near the end of its rate-hiking cycle.
The wholesale producer numbers have declined faster than the consumer inflation data. In May, the headline PPI number actually declined 0.4%, and was unchanged when excluding food, energy and trade services.
US inflation outlook brightening; consumer sentiment near two-year high
Source: Reuters
With the inflation environment improving considerably, Americans are growing more optimistic about the economic outlook. Consumer sentiment vaulted to the highest level in nearly two years in July, other data showed on Friday.
The disinflationary trend has raised cautious optimism that the economy could avoid a recession this year. Economists also believe an expected interest rate hike from the Federal Reserve later this month would be the last in the U.S. central bank's fastest monetary policy tightening cycle since the 1980s.
The Fed, which has hiked its benchmark overnight interest rate by 500 basis points since March 2022, skipped a rate hike at its policy meeting last month.
"The inflation pipeline is clearing up," said Jeffrey Roach, chief economist at LPL Financial in Charlotte, North Carolina. "Investors should expect the Fed in the upcoming meeting to acknowledge the continued improvement in pricing dynamics across the domestic economy."
US jobless claims fall again as labor market continues to flash strength
Source: ABC News/AP
Fewer Americans applied for unemployment benefits last week with the labor market continuing to cruise along despite higher interest rates intended to cool hiring.
U.S. applications for jobless claims fell by 9,000 to 228,000 for the week ending July 15, from 237,000 previous week, the Labor Department reported Thursday. The four-week moving average of claims, which evens out some of the weekly volatility, fell by 9,250 to 237,500. Jobless claim applications are viewed as reflective of the number of layoffs in a given week.
For three weeks in late May and early June, jobless claims had appeared to reach a sustained, higher level, above 260,000. But the past four weeks, claims have retreated and the labor market remains historically healthy.
Since more than 20 million jobs vanished when the COVID-19 pandemic hit in the spring of 2020, U.S. employers have added jobs at a blistering pace, more often than not beating forecasts. Despite the fastest interest rate hikes since 1989, the unemployment rate has hardly budged and remains historically low at 3.6%.
