Wall Street will be closely watching the release of the June jobs report on Friday morning, which could provide insight into whether or not the Federal Reserve will cut interest rates at its July meeting.
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As the U.S. enters the longest economic expansion on record, investors are looking at the Department of Labor’s monthly payroll and unemployment data for signs that the rapid job growth over the past two years is softening and lending way to an overall growth slowdown.
“A downside surprise would obviously exacerbate recession fears, but an upside surprise would be a bad sign for labor productivity and wage growth,” said Josh Wright, the chief economist at iCIMS and a former Fed staffer. “The latter is clearly the lesser of two evils, and the more likely.”
Economists surveyed by Refinitiv anticipate the U.S. economy to have created 160,000 jobs in June – more than double the weaker-than-expected 75,000 added in May and higher than the average creation of 151,000 jobs over the past three months. The unemployment rate, meanwhile, is expected to stay steady at 3.6 percent, a multi-decade low.
Investors will also keep watch for signs of inflation in wage growth and average hourly earnings, which are expected to rise 3.2 percent from a year ago, up slightly from May’s 3.1 percent reading.
If the job growth number comes in lower than expected, anticipate renewed calls for the Fed to cut the benchmark federal funds rate from the current range of 2.25 percent to 2.5 percent. Already, at their latest meeting in June, policymakers at the U.S. central bank heavily hinted at the possibility of a rate cut in July as they watch for signs of cooling growth.
"In light of these uncertainties and muted inflation pressures, the Committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective," the FOMC statement said.
Last month, U.S. private sector hiring fell short of expectations, with employers hiring just 102,000 people, according to the ADP National Employment Report. That was far below analyst expectations of 140,000.