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In a surprising turn of events, the US economy added 147,000 jobs in June, surpassing expectations and causing investors to reevaluate their predictions on interest rate cuts.
Despite concerns surrounding trade and immigration policies under the Trump administration, the Bureau of Labor Statistics reported figures that exceeded both May’s revised job additions of 144,000 and the 110,000 forecasted by economists.
The unemployment rate slightly decreased to 4.1%, with a revision showing an increase of 158,000 jobs in April.
These better-than-expected numbers are likely to relieve pressure on the US Federal Reserve to implement immediate interest rate cuts, contrary to President Trump’s persistent demands for monetary easing.
Following the data release, the dollar strengthened as investors adjusted their expectations for a slower pace of rate reductions by the Fed, resulting in a 0.5% increase against major currencies.
Market sentiment now indicates a mere 5% probability of a rate cut by the US central bank this month, down from 25% prior to the release of the employment data.
Andy Brenner, head of international fixed income at NatAlliance Securities, remarked, “The numbers exceeded expectations significantly, ruling out a rate cut in July. Even with a substantial slowdown in the consumer price index, a July cut is unlikely. The possibility of a rate cut in September is now uncertain.”
Despite Trump’s persistent pressure on Fed Chair Jay Powell to lower interest rates, Powell recently hinted at the possibility of a rate cut in July, contradicting his previous stance of maintaining rates until autumn.
However, analysts caution that the job market’s apparent strength may be misleading, as the drop in the unemployment rate was primarily driven by individuals exiting the labor force rather than finding employment.
Diane Swonk of KPMG noted, “The household survey indicates a stagnant job market with minimal turnover. The decline in the unemployment rate is not reflective of robust job creation.”
The two-year Treasury yield rose by 0.09 percentage points to 3.87% following the release of the data, signaling increased interest rate expectations.
US stock futures also saw a bump, with S&P 500 contracts up 0.2% prior to the New York market opening.
The job gains in June were primarily driven by growth in healthcare positions and a surprising uptick in state government employment after two years of stagnation.
In contrast, federal government employment continued to decline, with 69,000 jobs lost since January as part of cost-cutting measures.
Florian Ielpo, head of macro at Lombard Odier Investment Managers, pointed out that the spike in state government jobs accounted for a significant portion of the job growth beyond consensus estimates.
He remarked, “Overall, the report is positive, but perhaps not as robust as initially perceived.”