Good Friday morning from your Hometown Lender,
Even before we woke up this morning and received the jobs report (a lot to be said on that) Dr. Elliott Eisengberg dropped this on us “25Q2 GDP growth jumped to 3% seasonally and inflation-adjusted, up considerably from -0.5% in 25Q1. This puts 25H1 growth at 1.25%, down from 2.5% in 24H1. Importantly, final sales to private domestic purchasers, which strips out volatile trade, government spending/investment and inventory changes to arrive at underlying demand strength, slid from 1.9% in 25Q1 to 1.2%, stall speed; the weakest reading since late 2022. A September rate cut, please.”
Was Dr. Eisenberg prescient ahead of today’s jobs report?
Reset for a moment to when Fed Chair Jerome Powell said on Wednesday that “the main number you have to look at” in assessing the economy now is the unemployment rate—an everyman figure that’s like the batting average of jobs data.
This morning’s jobs data caused a huge swing in bonds, and rates are better, with the odds for a September cut jumping to 75%. The startling part of the report for me was not the mere 73k new jobs created on expectation of 115k. It was the revisions to last month’s data. June NFP jobs originally reported +147K revised to +14K, private jobs in June revised from 74K to 3K; May NFP jobs originally reported +125K revised to +19K; in total, 258K job gains were removed from data in the previous two months due to revisions. Please read that again, and someone explain to me how this is acceptable. Had the numbers been reported accurately initially, rates would be 50bps lower right now.
This bad reporting is a tax on the economy.
These elevated rates are not only limiting demand and transactions, but also putting more pressure on payments, limiting retail sales, auto sales, etc. The unemployment rate did increase by .1 to 4.2% but that too is misleading. The labor participation rate dropped, which kept the unemployment rate contained. The real unemployment gauge, which measures unemployed and underemployed, is sitting at 7.9% the highest in three years. There are six weeks before the next Fed meeting. Markets do not wait for the Fed, but as we are seeing today, with rates improving .125% -.25%, the data is important, and there is a lot to come between now and the next Fed meeting. The time to lock in would be soon, and not wait. Rates after Fed meetings when there has been a cut have worsened, not improved.
Stay safe, have a great weekend and first, make today great!!!