With the traditional first Friday of the week falling on July 4, the jobs report will come out tomorrow at 8:30am ET with headline NFP expected to show 106k jobs added in June, down from 139k in May, but far above today's shock ADP print of a negative 33k. The unemployment rate is expected to tick up to 4.3% from 4.2%, although beneath the 2025 Fed median of 4.5%. Meanwhile, the Fed's inflation bogeyman is expected to fall back further, with average hourly earnings seen rising by +0.3% M/M, down from the prior 0.4% pace, with the annual rate expected to remain at 3.9% Y/Y.
The data will be used to help shape Fed easing expectations, with 66bps of easing priced by the end of the year, markets are fully pricing two 25bps rate cuts, with a 64% probability of a third. As newsquawk reminds us, the latest Fed 2025 economic projections revealed that the median view continues to see two rate reductions in 2025, although an unexpectedly weak jobs report on Thursday would put July in play. Indeed, recent Fed commentary has seen both Governors Waller and Bowman suggest a July rate cut may be appropriate if inflation pressures stay contained, but the majority continue to favor a wait-and-see approach. Fedʼs Bostic suggested that they will not have enough clarity by July to act, while Fedʼs Barkin has suggested the NFP breakeven for the labor market is between 80-100k. Accordingly, any headline reading below this range would likely bolster the case for rate cuts, but there is still uncertainty ahead with regard to inflation. Powell expects to see meaningful tariff inflation effects in June, July, and August, but if this is not seen, that could lead to reducing rates sooner.
Throughout June, other labor market metrics have been weakening; both initial and continuing jobless claims rose relative to the survey week in May, ISM manufacturing employment sub-component fell further into contractionary territory, ADP private employment data for the month was woeful, while the Conference Board reports that consumersʼ views of the labor market became more pessimistic. However, Challengerʼs data showed the rate of layoffs eased in June, while the May JOLTS report was strong. JPMorgan has highlighted an improvement in the PMI all-industry employment index, while Homebase data in June was similar to past June months.
