Halyard’s Weekly Wrap – 07/08/22
Fed Governor Chris Waller “tipped his cards” on Thursday regarding this morning’s employment report, saying the “Robust labor market” gave him confidence in the strength of the economy. The report showed that the economy added 372,000 new jobs in June, well ahead of the 265,000 that was expected. Given the anecdotal weakness we’ve been witnessing, our expectation was that the jobs figure would disappoint. His comment on jobs was in addition to him saying that he favored another 75- basis point hike later this month. That rate hike recommendation was echoed by St. Louis Fed President James Bullard, and both are voters on the rate decision committee.
Contradicting the headline number, the household survey showed a decline in the labor force of 353,000 jobs. As we’ve explained previously, the two measures are usually directionally in agreement, but not always. The establishment and household survey in the April 2022 were nearly identical to the June results. From the media’s perspective, the establishment survey is the “go-to” number and today’s report will undoubtedly be supportive of the 75-basis point hike that Waller and Bullard called for.
Earlier in the week, the minutes from the June FOMC meeting were released and the tone was decidedly hawkish, arguing for another 75-basis point hike at the July meeting. The flaw in that logic is the minutes are 3 weeks old and since the rate hike, economic strength has clearly cooled. Many of the runaway commodity markets have come off the boil as has the demand for mortgages. The Atlanta Fed’s GDPNOW, a real time economic forecasting tool, registered -1.86% for Q2 GDP. If that forecast does come to pass when GDP is released later this month, the U.S. will officially have been in a recession for the entirety of 2022, and the Fed has been tightening into it, and continues to do so. That fact makes the employment discrepancy more relevant.
Looking to next week, investors will likely face down yet another worsening inflation report on Wednesday with CPI set to rise 1.1% mom, and 8.8% yoy. Second Quarter earnings will begin to trickle in as well, with JP Morgan and Morgan Stanley both reporting on Thursday and Citibank reporting Friday. Investors will be listening closely as the three CEO’s offer their assessment of the economy and the consumer.
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