Last week’s data was not the doom and gloom statistics of the prevailing market narrative. The market narrative is now stating the deterioration in the economy will now start next month.
The labor market data is consistent with the solid growth experienced thus far this year. June’s employment gains were greater than expected, however the prior months were revised lower.
Average hourly earnings were nominally higher than expected but the labor participation rate did not meet expectations and fell 0.2%. Year on year basis, wages are up 3.9%, a rate well over the inflation rate, so workers are getting added spending power.
Regarding the decline of federal jobs, the federal government shed 22,000 jobs in May and since January 20 a total of 51,000 jobs have been eliminated, an insignificant amount of a 2.9 million work force.
Consensus is estimating that the federal workforce and its ancillary sectors will be reduced by 500,000 people. The pivotal question is when will this expected decline occur? Next month? Or is it more bluster, data that is red meat for both sides of the political aisle.
It is often written that the first virtue lost in war and politics is truth.
The data again changed monetary policy expectations. At the time of this writing there is less than a 60% chance of an interest rate cut occurring in September and the market is now suggesting only 40 bps of reductions by year’s end.
Equites responded favorably to the statistics adding about 1% to most major indices.
The President again went on social media demanding FRB Chair Powell to lower interest rates by 100 bps.
His statement is ludicrous and again is red meat to both sides of the political aisle. The Chairman is the spokesperson of the Federal Open Market Committee that consists of 12 voting members. The Chairman is only one vote. He does not dictate the vote but only espouses what the Committee and its ancillary non-voting members (there are 22 in total) decide.
What will happen this week? Will the CPI and PPI indicate rising inflationary pressures from the tariffs? To date companies have been absorbing increased costs. This is good for the consumer but crushes corporate margins which may increase equity volatility, a volatility amplified by rising interest rates.
The economic calendar is comprised of the CPI and PPI, inventory data and a sentiment survey.
Last night the foreign markets were mixed. London was down 0.16%, Paris down 0.17% and Frankfurt down 0.58%. China was up 0.43%, Japan up 0.92% and Hang Seng up 1.63%.
Futures are flat as Chinese/American trade talks are continuing. The 10-year is up 1/32 to yield 4.50%.
