Economic indicators are released every week to provide insight into the overall health and performance of an economy. They serve as essential tools for policymakers, advisors, investors, and businesses because they allow them to make informed decisions regarding business strategies and financial markets. In the week ending on August 1st, the SPDR S&P 500 ETF Trust (SPY) rose 0.85% while the Invesco S&P 500® Equal Weight ETF (RSP) was up 1.40%.
Some of the most closely watched economic indicators are those surrounding the labor market. They provide insight into the health of the economy, directly impact individuals’ lives and play a central role in government policy decisions. At their meeting last week, the Fed voted to keep interest rates between 5.25% and 5.50% for an eighth consecutive meeting. But it signaled rate cuts are likely to begin at their next meeting in September. This article will discuss key data points from last week’s labor market reports and explore their potential implications.
Employment Report
The U.S. labor market cooled further last month as hiring slowed and unemployment rose. The July employment report revealed 114,000 jobs were added last month, falling short of the expected 176,000 addition. Hiring has now decelerated for three straight months. Additionally, previous months were revised lower, adding to the narrative of a weakening labor market.
The report also revealed a fourth consecutive increase in the unemployment rate to 4.3%, its highest level since October 2021. Additionally, hourly earnings increased 0.2% from the previous month and 3.6% from one year ago. Both readings marked a slowdown from June and were lower than their respective forecasts.
Overall, the latest jobs report supports the idea that the Fed will begin to cut rates later this year but has also fueled worries that the Fed may have waited too long. At the time of writing, the CME FedWatch Tool is currently projecting a 50 basis point cut at the September meeting with additional cuts to follow at the November and December meetings.
Job Openings and Labor Turnover (JOLTS)
The June JOLTS report revealed that job openings are continuing to become harder to come by. The number of job openings inched down by 46,000 to 8.184 million. That came in above the expected 8.020 million vacancies. Despite coming in slightly higher than anticipated, the overall trend in job openings continues to decline like it has over the past two years, slowly inching its way back to pre-pandemic levels. Other key data points from the report showed that the number of hires, quits, and layoffs decreased from the previous month. More specifically, hires fell to their lowest level since April 2020, quits dropped to their lowest level since December 2020, and layoffs fell to their lowest level since November 2022.
The JOLTS data serves as a barometer for assessing labor demand. Any disparity between workforce demand and supply could potentially exert upward pressure on inflation. Since the beginning of 2023, the gap between the two has consistently narrowed. Job openings have steadily declined since their March 2022 peak. In June, the number of job openings per employed worker dropped to 1.20, the lowest level since June 2021.
ADP Employment Report
In yet another sign of a cooling labor market, private sector hiring slowed for a fourth straight month in July. It added the fewest number of jobs in the past six months. According to the ADP employment report, 122,000 private jobs were added in July, less than the projected 147,000 addition. The pickup in July was most notable in the trade, transportation, & utilities industry which added 61,000 jobs last month, accounting for 50% of July’s private job growth. Additionally, large size companies (500+ employees) hired 62,000 jobs last month. Smaller companies (20-49) decreased hiring for a sixth straight month.
The report also showed that pay growth for both job-stayers and job-changers continues to slow. Pay gains for job-stayers were up 4.8% year-over-year, the slowest pace in three years. While pay gains for job-changes slowed for a fourth straight month to 7.2% year-over-year, its slowest pace since May 2021.
Economic Indicators and the Week Ahead
The economic calendar will be light this week. However, there are still a few macro data points to keep an eye on. The July readings for the S&P Global and ISM Services PMI will be released on Monday followed by the Q2 Household Debt and Credit report and June’s Trade Balance data on Tuesday.
The S&P Global Services PMI is expected to increase for a 3rd consecutive month to 56.0 and the ISM Services PMI is forecasted to rise to 51.0 from 48.8 in June. The trade deficit is expected to shrink to -$72.90 billion. Lastly, household debt and credit is expected to have increased further in the second quarter to a new record high.
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