Payden & Rygel: Fed rates? US Employment/Unemployment

Jul 9, 2024

As investors recovered from 4th of July barbecues, the [US] Bureau of Labor Statistics greeted them with a larger-than-expected number of 206,000 new jobs added in June. Not everything was great in the report: the unemployment rate was up to 4.1%.

What explains the divergence? We remind our readers that the jobs report comprises two surveys, household and establishment. Employment in the household survey recovered from a negative reading in May, but the labor force rose by even more, putting upward pressure on the unemployment rate. Meanwhile, the establishment survey maintains its pace of c. 200k jobs, around its average levels since the summer of 2023.

Despite the market odds of a September rate cut at 70%, celebrate your freedom from relying on just the household survey and embrace the reality that it will take a sharper slowdown in job growth - probably something closer to -213k in terms of payrolls - to push the Fed to cut rates.