June Jobs Report Preview: Cooler Labor Market Trends May Further Strengthen Rate Cut Hopes – Automatic Data Processing (NASDAQ:ADP), SPDR Gold Trust (ARCA:GLD)

The US job market doesn’t look as tight and hot as it did a few months ago, with June Employment Situation REPORT is likely to show an overall cooling trend from a very strong run in May.

Scheduled for release Friday at 8:30 a.m. ETofficial job report from Bureau of Labor Statistics is expected to reveal a slowdown in nonfarm payrolls growth and a slowdown in income momentum.

On Tuesday, the Chairman of the Fed Jerome Powell suggested that the labor market is “cooling down properly” and the Fed will monitor these developments, ready to act if conditions warrant.

  • Economists forecast a decline in the pace of new monthly nonfarm payrolls from 272,000 in May to 189,000 in June. Estimates range from 150,000 to 237,000, according to Econoday.
  • The unemployment rate is expected to remain stable at 4%.
  • Average hourly earnings are forecast to rise at a 0.3% month-over-month pace, a slowdown from May’s 0.4%.
  • On an annual basis, wage growth is expected to fall from 4.1% to 3.9%.

Recent economic data has been mixed, suggesting possible surprises in the June employment report compared to economists’ expectations.

ADP’s National Employment Report, which uses payroll data from Automatic Data Processing Inc. ADP and focuses on private employment, revealed 150,000 job additions in June, below May’s 157,000 and the 160,000 forecast. Wage growth slowed, with employers reporting a 4.9% year-over-year increase.

Nela Richardsonchief economist at ADP, said job growth was solid but “not broad-based,” noting that June’s numbers would have been disappointing without a rebound in leisure and hospitality employment.

Read also: Private employers add 150,000 jobs in June, less than expected: Job growth ‘strong but not broad-based’

Bill Adamschief economist for Comerica Bankpointed out that private job growth was cool in June according to ADP and the government jobs report is also expected to show the smallest wage growth since 2021.

Comerica expects nonfarm payroll employment to rise by 220,000 in June, with the unemployment rate rising to 4.1% from 4.0%.

Adams also noted that the ADP data does not capture the significant increase in self-employment due to gig work and entrepreneurship, which are growing faster than in the pre-pandemic period.

Overall, the ADP and jobless claims reports reinforce the impression that the labor market has cooled and is likely to cool further in the second half of 2024.

The most mixed indications ahead of Friday’s jobs report came from service sector surveys by S&P Global and the Institute for Supply Management (ISM).

The S&P Global Services Purchasing Managers’ Index for June showed the strongest expansion for U.S. services activity since April 2022, extending the growth streak to 17 consecutive months. In contrast, the ISM Services PMI reported the worst contraction in over four years last month.

Employment conditions also differed significantly in the two surveys. The S&P Global Services PMI showed that employment returned to growth after two months of contraction, while the ISM reported a faster pace of contraction in the services labor market.

“U.S. service sector companies reported an encouragingly strong end to the second quarter, with output growing at the fastest pace in more than two years. Both new order inflows and hiring accelerated, the latter boosted from firms that take on more workers in response to the increase in the number of workers”. Chris Williamsonchief business economist at S&P Global Market Intelligencesaid.

Steve Millerchairman of ISM Services Business Survey Committeecommented, “The decline in the composite index in June is the result of significantly lower business activity, a contraction in new orders for the second time since May 2020, and continued contraction in employment.”

On Thursday, market reactions highlighted the importance investors placed on the ISM Services PMI. Treasury yields fell 8 to 9 basis points late as traders increased bets on a Fed rate cut.

The probability of a rate cut in September rose from 65% to 73% after the release, with 52 basis points of cuts already forecast by the end of the year.

The bonds were collected, with iShares 20+ Year Treasury Bond ETF TLT increasing by 1.4%, while the US dollar weakened significantly, falling by 0.5%.

Lower yields and a weaker greenback helped gold prices, with the precious metal as tracked by SPDR Gold Trust GLDup 1.4%, seeing its best-performing session since mid-May.

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