With second-quarter gross domestic product (GDP) coming in notably stronger than expected, investors are already looking ahead to the July jobs report, due Aug. 2, for insight into whether unemployment is keeping pace with the otherwise tight economy. Will the stock market crash?
Well, maybe.
If you recall, the unemployment rate hit 4.1% in June, the highest reading since October 2021. Despite this, the economy actually added 206,000 jobs in June, better than forecasts of 200,000 nonfarm payrolls. Government jobs carried the June employment report, contributing 70,000 jobs.
Still, this marked the second straight month of rising unemployment, which perhaps suggests the economy is experiencing at least some slowdown due to the Federal Reserve’s elevated interest rates.
This sparked speculation that the Fed would opt to cut rates sooner rather than later to avoid excessive rate-induced economic deterioration.
“It’s a soft landing kind of report,” Jan Hatzius, chief economist at Goldman Sachs, told CNBC after the report’s release. “This does support the idea that [the Fed] will cut relatively soon, and we continue to think September is the most likely.”
This time around, economists expect the U.S. economy to add 180,000 jobs in July, keeping the unemployment rate steady at 4.1%.
Stock Market Crash Fears Swirl Ahead of July Jobs Report
Despite the strength of the June jobs and Q2 GDP reports, the July jobs report may truly determine whether the Fed goes through with the predicted September rate cut.
While rising unemployment isn’t traditionally considered a positive for the economy, this time around, it kind of is. The Fed has long waited for the labor market to slow down as a sign that prices are truly heading downwards.
With inflation coming out negative in June, alongside fairly strong GDP numbers, the only thing standing in the Fed’s way is jobs.
Should the labor market heat back up, the Fed would be granted some additional leeway to hold off cutting rates even longer, something Wall Street dreads.
On the flip side, if unemployment were to stay the same or even rise slightly, it would put the onus on the Fed to cut rates to avoid an economic downturn. The point remains the same if unemployment were to notably increase, but it would potentially suggest the country is on a recession trajectory, which, once again, Wall Street wouldn’t like.
“The things that we’ve reliably fed into our estimate [of 175,000 net jobs added in July] still aren’t flashing red,” said Matt Colyar, an economist at Moody’s Analytics.“To this point, the labor market has not shown any significant signs of a rapid slowdown, it’s been more of a gradual cooling.”
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
