The biggest economic news of the week was the Non-Farm Payrolls (NFP) report, which showed a +272K rise in jobs, exceeding expectations. Additionally, average hourly earnings grew by 0.4%, higher than the consensus estimate, indicating potential wage growth. This led to a spike in interest rates, as markets adjusted their expectations for rate cuts in the future. Despite these positive numbers, other labor market indicators suggest softening, with layoff announcements increasing across various sectors. The Household Survey reported a loss of -408K jobs and a shrinking labor force, pointing to underlying weaknesses in the labor market.
The JOLTS voluntary quit rate has decreased, indicating lower wage growth, despite the hot wage number reported. Job openings have also declined in April, suggesting a slowdown in hiring. ADP’s report showed fewer jobs created in May than expected, with small businesses experiencing a decrease in employment. Full-time jobs have been disappearing, replaced by part-time positions, indicating a cooling labor market. The Regional Federal Reserve Banks’ GDP forecasting models have shown volatility, with forecasts fluctuating around economic turning points.
The Federal Reserve has maintained a hawkish stance, focusing on lagging indicators like the NFP report and wage growth numbers. While the Fed has not yet lowered interest rates, other central banks worldwide have begun to do so due to falling inflation rates. The trend of inflation is trending downward rapidly, prompting some central banks to adopt less restrictive monetary policies. The commercial real estate market is facing foreclosures, with several significant properties going into foreclosure, signaling a potential financial crisis in the industry.
The strength in the NFP numbers is seen as an anomaly, as other employment surveys show a weakening picture. The Household Survey, which provides a more accurate assessment of the labor market’s health, reported a significant loss of jobs. Despite a shrinkage in the labor force, the unemployment rate has increased, indicating underlying weaknesses in the job market. Interest rates spiked following the NFP report, but it is still uncertain if there will be rate cuts by the end of the year.
The Fed is now lagging behind other central banks in adjusting interest rates, as global economic conditions continue to weaken. Inflation rates are moving lower, prompting other central banks to adopt less restrictive policies. The CRE market continues to face challenges, with foreclosures becoming more frequent. This could have significant implications for the financial sector in the coming months. Overall, the economic data suggests potential challenges ahead, despite some positive indicators in the NFP report.
