June jobs panel: We didn’t expect fireworks as economy cools

The US labor market saw 206,000 added in the month of June, according to the US Bureau of Labor Statistics. The Morning Brief is joined by a panel of experts to detail what the string of positive employment data ultimately means for the US economy: Glassdoor senior economist Daniel Zhao, Longview Economics director and senior market strategist Harry Colvin, and Interactive Brokers chief strategist Steve Sosnick.

Sosnick believes the state of the economy may not be entirely optimal for equities (^DJI, ^IXIC, ^GSPC), adding that: “When the Fed [Federal Reserve] meets, and we’ll get a sense of how nervous they are about it because it does seem that the economy is beginning to decelerate, and then the question becomes ‘what are they willing to do about it in the short term?'”

Colvin believes “there’s not a lot of job creation, that hiring in small or total jobs in small companies has been flat for most of the past year.”

“And so the household survey is picking up on that. And it’s showing that really the job market is actually much softer than one would think from just looking at these headline numbers. So I think there’s softness emerging. And this is fascinating, really, for the debate around inflation and [interest] rates,” Colvin goes on to say.

Lastly, Zhao states that the cooling labor print wasn’t exactly sizzling, “but we weren’t necessarily looking for fireworks as policymakers look for the economy and the job market to cool down to get inflation under control.”

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Luke Carberry Mogan.

Video Transcript

The US adding 206,000 jobs in June.

We wanna dive deeper into this report and the market’s reaction with Daniel Zhao Glassdoor, senior economist Harry Colvin Longview, economics director and senior market strategist and Steve Sosnick interactive Brokers chief strategist.

Well, lots of folks in this uh in this box.

Good to see you all.

Thanks for doing this after the holiday, Steve.

I wanna go right to you and I wanna get your instant take on, on some stocks here.

So I think we were just talking to Joe Brusuelas about this.

Um So, but you saw the down revisions in the jobs in the prior two months.

Maybe the expectation inflation is slowing down sets the stage for that September rate cut.

I mean, this has to be good news for some of the market’s hottest stocks so I can video Apple Amazon, right.

Good morning, Brian.

Good news.

I don’t know enough news to upset the the momentum trend.

No, this, this does nothing, this does nothing if you’ve been riding the, the Momo train.

Story continues

Um then there’s no reason right now based on these numbers to get off what it’s telling us today is that the economy does seem to be uh slowing down decelerating a bit.

I guess the real question will come la later this month when the fed meets and we’ll get a sense of um how Nervo they are about it because it does seem that the economy is, is beginning to decelerate.

Um And then the question becomes, what are they willing to do about it in the short term though?

You know, we, we’ve been on such a momentum high.

It, it’s tough, it’s tough to just say that this number changes anything meaningfully about the stocks that have been driving the market higher.

Let’s stay with the markets for a hot second.

Harry, I’ll come your way here and we’re, you know, staring down another earning season, what at least from the economic prints that we’re getting, what could the spell out in terms of a broader theme or narrative that you hear from a lot of the CEO S over the course of the next couple of months?

Well, I think it comes back to that point that one of your guests alluded to earlier, which was that companies have been hoarding a lot of labor.

That was certainly the story 1218 months ago.

And certainly if you look at the leading indicators of the labor market, companies are telling us, they wanna let go of some of the excess, they wanna trim a bit of the, the fat, get a little bit more efficient and I think we’re beginning to see some of the softness coming through in the labor market.

You know, we have these downward revisions on, on the headline on the establishment survey.

I, I would say as well, you’ve got to look at the household survey because it’s probably giving you a much better read of what’s really going on in the US economy when the establishment survey is only asking the same large companies every month about hiring.

And as you see in the AD P report, that’s where all the job creation is.

Look at small companies, actually, there’s not a lot of job creation that hiring in small or total jobs in small companies has been flat for most the past year.

And so the household survey is picking up on that and it’s showing that really the job market is actually much softer than one would think from just looking at these headline numbers.

So I think there’s softness emerging and, and this is fascinating really for the debate around inflation and rates.

Daniel.

Uh another uh somewhat decent jobs report here.

What does it say about some of President Biden’s policies and, and their impact on the economy?

Well, I think it’s always tough to attribute um the growth in the jobs market or in the economy overall specifically to president’s policies.

But overall, we do see that the, the job market has been much more resilient over the last three plus years.

Than we’ve expected.

Like that’s been the refrain that the job market is stubbornly resilient and in fact, stronger than a lot of forecasters would have expected going in.

So, uh overall, we are seeing that the job market is surprisingly resilient.

It is cooling like we didn’t get fireworks today, but we weren’t necessarily looking for fireworks as policymakers look for the, the economy and the job market to cool down get inflation under control.

Steve, what is the kind of trend that we’re seeing in, in economic data, at least right now, set up for the second half playbook for investors out there.

Well, Brad, the question becomes, you know, we, we rallied this year um as the economy strengthened, allowing the rate cut expectations to dissipate.

Now, the question is, are we if we’re flipping back to rate cut expectations?

And last, I just checked before him, we were about at 80% for a cut in September.

Now, um is that because the economy is slowing?

So, you know, does the market get it both ways?

Can we do we like it if do we like it if the economy is strong and, and no rate cuts?

And by the way, oh, the economy is weak and we are getting rate cuts.

Um You know, that’s where the question, that’s why I bring back the f the importance of the July meeting because the question is not necessarily 25 basis points here or there, the question becomes, is the fed prepared to do something and to act or are they going to wait until the problem might metastasize into something larger?

So again, in the short term, you know, that this market is just so momentum driven, so driven by a, by a small cadre of stocks, it doesn’t necessarily uh make a difference until, until we start to see earnings results.

Uh also later this month.

Um by the way, there’s a lot of things coming later this month and you have a Vix which is looking 30 days ahead, which is basically ignoring all this.

So that’s the other thing to sort of keep in mind as we go forward, Steve you and I always have these candid conversations on stocks.

I just, and tell me if I’m wrong, I just feel as though investors are complacent about things that are about to come right at, at them.

You have a president fighting for his job.

The other alternative is we know what the other alternative is with Trump isn’t the market being too complacent around political risk.

And if I’m wrong, tell me I’m wrong and lay out your case, Brian.

You know, I’ve never shied away from telling you when I thought you were wrong and I don’t think you’re wrong this time.

I think we’re, which is not to say, uh, producers, please book Steve on the show again.

We like we like we like, you can tell me I’m right on the phone.

But, but absolutely, that’s what I was alluding to is, is we’re, we’re looking at a period of complacency.

You know, basically the stock market was didn’t budge as the result of that, of the debate and all the, and all the drama swirling around Biden, the bond market did move, it reacted negatively initially, it’s since come back a bit.

Um You know, again, we have later this month, we have a, a fed meeting that just became a bit more consequential um later this month.

And you know, as I note fix is meant to give the market’s best estimate of volatility of over the coming 30 days.

And it’s telling you, it doesn’t expect any, a lot of that has to do with the fact that, you know, internals of the market, you know, certain stock, you know, if you have some of the stocks rising and some of the stocks falling, well, then that dampens the index.

Uh but it does tell me that markets just really do not seem to, they don’t seem to care as long as long as the, the, you know, the Magnificent seven and the, the adjacent stocks keep holding their own in stock investors just aren’t, aren’t registering anything else.

Daniel as, as I’m taking a look through this report, as I’m kind of thinking about all the commentary in this discussion here, it kind of brings me back to this, this thought that many of us were sitting here waiting for so many jobs to be replaced by artificial intelligence and we continue to get readings about job growth even if that is slowing as of right now.

Does it seem like there’s anywhere where we’re seeing a massive kind of shift into a I specific jobs being kind of taken taking over?

I should say some of the existing workforce participation, we aren’t really seeing it replace jobs yet.

We are.

We do see from survey evidence from talking to employers like one of the most common ways that A I is being deployed right now is chat bots and marketing automation, right?

So it’s not necessarily the sexiest like application of A I. Um not necessarily the the high, high highs that um A I practitioners have have really promised, but it is starting to be used and it’s starting to be experimented with uh but not necessarily at a scale that you would expect to see an impact at the the macroeconomic level.

Um So it’s possible if you look within marketing or content moderation, some of these jobs that might see a little bit of impact from A I, you could kind of see these micro impacts, but we’re not really seeing it at the scale of macroeconomic level.

We’re not seeing mass job displacement, harry last word to you and we’re not going to see these headlines today.

I get it, but you’re going to see it probably over the next week you’re gonna see slowing job market, unemployment rate up and people suggesting some form of 2025 recession, mid, mid 2025 late 2025 it’s just going to happen.

Do you see anything in this report or in other data that you watch that would suggest that is a possibility or they’re just living in a different world?

No, I think that there are lots of pieces of this report that are quite troubling and suggest that recession risk is certainly non-trivial in the next 12 months, particularly if you look, for example, at the very sharp fall we had in the number of people working temporary health jobs in the service sector that normally falls before recessions, it’s falling.

Or you look at the number of people working part time because they can’t find a full time job.

It’s trending up often.

What happens before recession or, or you know, you look at the number of permanent job losers also that continues to trend up.

So there are signs of cracks, there are signs of weakness.

Is it a recession or is it just a soft patch?

That’s the question our view is, it’s probably just a soft patch because you look at the health of the corporate sector.

It’s in very good shape, throwing off recap, flow margin, expansion is good profits are trending up.

You don’t tend to get recessions when company company health is really good like it is today in fact, what you get often is volatility in equity markets, dying of death.

And that’s what we’ve been seeing this year.

It’s what we saw in 2017, in 2013.

And other times when corporate sector risk has been very low.

Daniel Zhao, uh Harry Colvin and Steve Sosnick.

Thanks for waking up early uh for us on this day after July 4th.

Appreciate it.

Have a good weekend.