The big economic news of the week was the +272K rise in Non-Farm Payrolls (NFP) released on Friday, June 7, beating expectations. Another significant data point was the average hourly earnings growth of +0.4% in May, above the consensus estimate, leading to concerns about potential rate cuts. The labor market is showing signs of softening with notable layoff trends across various industries, highlighting recession pressures and economic challenges. The Household Survey reported a loss of -408K jobs and a shrinking labor force, indicating the health of the labor market is not as strong as headline numbers suggest.
Despite the strong Non-Farm Payroll numbers, other employment surveys show a weakening picture with full-time jobs down -1.2 million from a year ago. The Household Survey, which accurately reflects economic turning points, reported significant job losses and a rise in part-time employment. The volatility in the data, with some indicators showing strength and others weakness, indicates potential economic turning points. Interest rates spiked on Friday following the NFP report, as lower rate cut expectations led to adjustments in the market.
The Federal Reserve has maintained a hawkish stance, focusing on lagging indicators like the NFP report and wage growth. However, other central banks have taken a different approach, lowering rates in response to weakening economic conditions. Inflation is trending down rapidly, leading central banks to ease monetary policy. The commercial real estate (CRE) sector is facing challenges, with foreclosures on the rise and potential financial consequences looming. The weakness in the labor market and declining inflation suggest that staying too restrictive for too long could be a policy error.
The data on inflation continue to show a downward trend, prompting central banks to adjust their monetary policy stance. The volatility in economic forecasts from regional Federal Reserve Banks indicates uncertainty about the future trajectory of the economy. With significant CRE foreclosures and job market weaknesses, the economic outlook remains uncertain. Despite the strong NFP numbers, the overall health of the labor market and potential economic turning points suggest a cautious approach may be warranted in the months ahead.
