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September Rate Cut Still Possible Due to Cooling U.S. Jobs Market

Analysis of June Jobs Report and Potential Impact on Fed Rate Cuts

The latest jobs report from the Department of Commerce in Washington has revealed a concerning trend of weakening job creation and rising unemployment. Non-farm payrolls rose by 206k in June, slightly above the consensus of 190k, but with significant downward revisions to previous months. This indicates a clear cooling in job creation, with the 3-month moving average at its weakest since January 2021.

The most alarming aspect of the report is the unemployment rate breaking above 4% to 4.1%, a significant increase from 3.4% in April of last year. This rise in unemployment suggests that slack is forming in the economy, which is keeping wage growth subdued. Average hourly earnings increased by 0.3% MoM/3.9% YoY, the slowest rate of annual increase since 2Q 2021.

Private sector job creation also looks particularly weak, with government and private education/healthcare services dominating job growth. Sectors like leisure & hospitality, retail, temporary help, professional business services, and manufacturing all saw job losses in June. Private payrolls only increased by 136k, falling short of the expected 160k.

The report has raised concerns about a potential rate cut by the Federal Reserve in September. The Fed may consider a rate cut to prevent a recession and address the slowing pace of job creation. Business surveys are indicating intensifying weakness in economic activity and job creation, which may prompt the Fed to cut rates more rapidly. Some analysts are predicting three rate cuts this year, with the Fed Funds rate potentially dropping to 4% by next summer.

Overall, the latest jobs report paints a concerning picture of the US labor market, with implications for both monetary policy and the broader economy. Stay tuned for further updates on this developing story.


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