Nonfarm payrolls rose above expectations in June, with the US Bureau of Labor Statistics reporting 206,000 new jobs compared to the expected 190,000. However, the US unemployment rate ticked up to 4.1%, higher than the estimated 4.0%. RSM chief economist Joe Brusuelas joins Morning Brief to discuss the print and what it means for the overall health of the economy.
“This is what full employment looks like. This is what you want to see. This is a very good number,” Brusuelas says. He explains that the print is good news for the Federal Reserve, as the economy is responding to higher interest rates and cooling down: “A policy rate in a range between 5.25% and 5.5% is no longer appropriate for an economy that has an inflation rate of 2.6% — taken out to three decimals is 2.563%. Moreover, growth is cooling, hiring is cooling, the economy is normalizing. We’re moving back to that pre-pandemic trend.”
Brusuelas adds, “I’m more comfortable with the Fed actually hinting in July that they were going to go in September. If I’m a Fed member, I’m actually thinking about July. They want to get out in front of what’s going to be a decelerating job market.” He anticipates inflation to hit 2.3% by the end of the year, stating “we’re within shouting distance” of the Fed’s target of 2%.
While many have their sights set on September for the first rate cut, he says, “I’m comfortable even with them considering July at this point, because I do think the economy is just normalizing. I want to be clear here, guys: This isn’t a crack in the job market. It’s not the economy’s foundations cracking. We’re moving back to trend.”
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This post was written by Melanie Riehl
Video Transcript
Joining us now to break down this latest June jobs number.
We’ve got Joe Brusuelas who is the RSM chief economist, good friend of the show.
Joe Great to have you here on set.
You were actually talking ahead of when we went live about this interesting dynamic about how if we see the jobs for the non farm payrolls come in higher than expected, then we might have actually seen this exact reaction in unemployment rate as well.
That’s right.
So look, guys, this is what full employment looks like.
This is what you want to see.
This is a very good number.
Now, you, you know, the, the the date is we had up just before the, the number was released.
You know, um immigrations played a big role in not just growth of the economy but growth in the labor market.
Uh Goldman put out that report and they were right about that.
It’s slowed since March and at one point, we’re gonna see these numbers come in a little bit lower.
Last year, Jay Powell was talking about how he thought the break even in overall monthly unemployment gains was somewhere between 5100 now, that was because we had that strong growth in labor supply.
That’s now slowing.
So my sense is, it’s probably somewhere between 1 5200 today.
Nevertheless, this is another good, absolutely rock solid labor report.
There’s not much to complain about here.
Moreover, if you’re a market player and you see those um downward divisions of 100 and 11,000 over the past couple of months.
Hey guys, that’s fed positive.
Well said, isn’t this the perfect report for JP?
So you’ve had inflation start to decelerate.
You have downward revisions.
You don’t have a too hot report that has to put a September rate cut on, on deck here.
No, it does.
As a matter of fact, look guys, a policy rate in a range between 5.25 and 5.5% is no longer appropriate for an economy that has an inflation rate of 2.6% taken out to three decimals is 2.563 right.
Moreover growth is cooling.
Hiring is cooling, the economy is normalizing.
We’re moving back to that pre pandemic trend.
You know, the large and persistent shocks that we’ve all lived through the past couple of years.
I think we often under undercount that or really underestimate just what it’s done to the economy.
This is unambiguous good news here guys.
This is what you want to see that firework show we all watched last night, they should rerun it again.
After this report, I see this report and this is not a stock recommendation.
I’m thinking if I’m, if I’m trading, this is a buy nvidia apple type of market.
Not too, uh, not too hot.
A jobs report, you have lower interest rates.
I mean, why not?
Just stick with what’s working in tech?
I mean, well, you wanna be able to mute at least one part of the kind of investment calculus and so far muted higher for longer has meant the fed is gonna be mute at least for this interim period, which has led to that exact trade that you’re talking about or at least solidified it.
I’m taking a look at the CMB fed watch probability here and tabbing over to that month that you were just mentioning Saz and uh Joe, you were discussing as well here.
We actually saw a slight tick lower just barely here, but I mean, the probability is still largely pointing towards a rate cut.
They’re not right.
I’m right.
I’m right.
That’s right.
Just close that close, that close that down the, the, the deceleration in our averagely earnings to 0.3 percent of the month, 3.9% year over year, along with those downward revisions that tells me we can take off the table any notion of, of wage, wage inflation really being on the table.
Guys, I’m more comfortable with the Fed actually hinting in July that they were gonna go in September if I’m a fed member, I’m actually thinking about July.
They wanna get out in front of what’s gonna be a decelerating job market.
So Joe, this report might be good um for markets semester, but is it good for the president?
Now?
He’s had a rough week and he may have a rough few more days.
But you have a decelerating job market and the unemployment rate is going to go up on the weekend papers.
You’re going to see unemployment rate is on an uptrend job market slowing.
I mean, this is not good for him.
So my sense is is that the US presidential election right now is about things other than the US economy, us economy is going to be a second order story probably through through November 5th.
Look, you know, headlines are headlines, the American people know 4% unemployment, that’s really good.
That means I can get a job.
My wages are going up and look guys, but they don’t feel good.
So the economy has a funny way of trumping ideology and politics right at a certain point that increase in wages above inflation does tend to take hold moreover at the end of the day.
What do we all see?
We see them out spending, we see them out traveling.
I mean, I go to the airport tomorrow morning, we’re leaving extra early because over at laguardia, it’s gonna be a royal mess because people are out spending hard earned money I mean, I know what I’m doing.
Well, I spent $7 on a bag of cauliflower chips yesterday and the bag was smaller.
I mean, that’s what people are seeing.
I mean, and they’re, they’re concerned.
But anyway, uh, I mean, your point is well taken.
Your point is well taken.
You also cooked that Tomahawk steak that you sent me a photo of the ceremony for.
So, I mean, at the end of the day and I was taking a look at one of the notes that was out from Black Rock as they were talking about continued disinflation and allowing maintenance cuts here.
You know, how do, how do you look at disinflation as we’re seeing it right now?
Uh And what that means for some of the positive developments that we would need to see towards the back half and continuing in the back half of this year to set forth up a rate cut pathway even more.
So in 2024.
So the the fed has been really consistent on this.
They don’t need to see disinflation or inflation.
Get to the target 2% on the top line.
P ce our forecast says we’re gonna be at 2.3% by the end of the year.
Look guys, we’re within shouting distance of it.
Now, if you want to get out and get in front of this and not have the fed be behind the curve, they need to begin shaping expectations I think of that rate cut in September.
That’s been our call for a long time.
We’ve got 25 on the table in September and again in December again.
But I’m comfortable even with them considering July at this point because I do think the growth in the economy or the economy is just normalizing.
I wanna be clear here guys, this isn’t a crack in the job market.
It’s not the economy’s foundations cracking.
We’re moving back to trend.
You know, when I see 206 and I think they probably overestimated by 20 to 40.
Hey, guys, that’s sustainable.
This is very good stuff.
Do you see a catalyst in place to drive a re acceleration in these jobs?
Numbers?
No, I just don’t see that.
Right.
You, you know, job openings are gonna move up and down every month.
But my sense here is is that firms have retained labor for a very long period of time demands now cooling, they’re not going to continue to hoard labor like they have been.
So we expect unemployment.
We, our forecast was 4.2% by the end of the year.
That’s looking pretty good here on July 5th 8 p.m. Where are you going to be tonight?
Joe?
I’m going to be watching the president talk tonight like I think we all should get out there and register to vote.
It’s important, Joe as well.
It’s always good to see you RSM.
Chief economist.
We’ll talk to you soon.
Have a good weekend.