| In June, employers added 206,000 jobs, according to the Bureau of Labor Statistics BLS, noticeably lower than the average increase of 220,000 jobs across the previous 12 months. Unemployment ticked up to 4.1%, reaching its highest level since November 2021. |
| The increase in the unemployment rate was due to more people becoming unemployed, rather than more people joining the labor force. The widely used Sahm rule, which has a perfect track record of predicting recessions in the past, looks for a 0.50% increase in the unemployment rate over the past year. This report shows the increase currently stands under that number at 0.43%. However, we should note that the Sahm rule may not be as predictive as it was in the past, given that the post-pandemic economy has repeatedly defied expectations. |
| Our take |
| This report, combined with the latest inflation data, makes a September rate cut likely. Fed officials have said they are letting inflation data guide their policy since the labor market has cooled enough to no longer provide inflationary pressure. The next CPI report will be released on Thursday and the next PCE report will drop on July 26. If these reports don’t contain any surprises, the Fed should start laying the groundwork, perhaps as soon as their July 31st meeting, for rate cuts in September. Outside of any unforeseen economic events or spikes in inflation, we should expect lower mortgage rates to close out the year. |
Jobs report makes Fed rate cuts more likely
