Why the June Jobs Report Wipes Out a July Rate Cut
The inflation data in the June Services PMI report will provide additional clues.
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The June Employment Report surprised to the upside with 147,000 jobs added during the month, up modestly from the upwardly revised May figure of 144,000 and the market forecast of 110,000. The June Unemployment Rate ticked lower to 4.1% from 4.2% in May, not rising to 4.3% as the market expected it would.
In reviewing the data beneath the headline figures, we find government jobs jumped to 73,000 in June from essentially a net nil figure between February and May. That's surprising for sure due to state and local hiring, but what it also means is private-sector jobs came in at 74,000 jobs in June. Granted, that is the weakest figure since October 2024, but it also shows far more jobs being added compared to the net loss found in ADP’s June Employment Report.
That’s enough jobs being added, especially when paired with recent inflation data, for the Fed not to deliver a rate cut later this month, especially with the Unemployment Rate inching lower.
Next up, we have the June Services PMI report from ISM at 10 AM ET. We'll look for confirmation of the June jobs growth found in the Employment report, but also be watching what it finds for inflation and new orders. As a reminder, we weigh the Services PMI findings to a greater degree given that part of the economy drives 85%-90% of GDP. Should we see the Pricing data rise further in the June Service PMI data, like we saw in the June Manufacturing PMI report earlier this week, the follow-through reaction is likely to be a dip in market expectations for a September rate cut.
Our view on a September rate cut continues to be that the odds will hinge on what we see in the sea of remaining June data, as well as for July and August, before the Fed’s September 17 policy decision. We also recognize that the longer we go without Trump trade deals, the longer it will take tariffs to work through the supply chain. With that in mind, if the market is underwhelmed by the expected trade deal announcements slated before July 9, we could see the rate-cut conversation shift to the Fed’s October meeting.
