Are rate cuts on the way?
The pace of hiring and wage growth in the US slowed in June as a sharp increase in unemployment appeared to raise the likelihood of the Federal Reserve lowering interest rates in the second half of the year.
New government data showed on Friday that the labor market added 206,000 jobs last month, with the unemployment rate rising to 4.1%. That marked its highest level since late in 2021, when the economy was still reeling from uncertainty and instability caused by the COVID-19 pandemic.
Average hourly earnings also dipped last month, while a revision for job growth meant the previous two months saw 111,000 fewer jobs added than previously estimated.
Mortgage Bankers Association senior vice president and chief economist Mike Fratantoni pointed out than over a third of jobs added in June were government roles, with the overall figures indicating a slowing jobs market.
Payroll employment increases by 206,000 in June; unemployment rate changes little at 4.1% https://t.co/ZwrVfLviqL #JobsReport #BLSdata
— BLS-Labor Statistics (@BLS_gov) July 5, 2024
Wage gains ticked downwards to 3.9% on a 12-month basis – while a 49,000-decrease in the number of temporary hires showed business demand for labor was on the way down, he said.
The labor market remains “tight” by historical standards, according to Fratantoni, but looks set to weaken further in the months ahead.
“Inflation data showing more reductions for the next couple of months will be the most important evidence that the Federal Reserve needs to cut rates in September,” he said. “The current job market data points in that direction once you read below the headline.”
The Fed opted to keep interest rates on hold following its last meeting, suggesting that sustained downward pressure on inflation was required before it could consider bringing rates lower.
The central bank’s next deliberations on its key rate are scheduled to take place at the end of this month, between July 30 and 31.
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