Let's get to the big story.
Breakdown while the May jobs report just came out and we saw nonfarm payrolls for the latest month come in much stronger than expected.
At the same time, the US unemployment rate remained unchanged at 4.3%.
Well joining us to break down what is actually happening beneath the surface is Jeffrey Roach who's chief economist at LP.
Financial.
Well Jeff, great to have you here.
Thank you so much for joining me.
So we got the May jobs figures and of course the headline off our payrolls did come in better than expected and we also saw the moving average as well as the revisions.
But at the same time, the unemployment rate does remain unchanged.
So what's going on below the surface?
Well, there's not much going on below the surface in the sense that it's, it's stable as she goes.
There's starting perhaps maybe to see a little bit dispersion among categories like health care, leisure and hospitality, retail sector, but this jobs report was pretty strong, stronger than expected.
A stronger than I thought would happen and the unemployment rate is really not moving around.
We are still in this low hire, low fire environment.
So in this case, consumers are still going to the stores.
They're still buying automobiles.
They're still traveling, and so because of that you're seeing payrolls remain fairly steady.
I think one of the things going forward, continue to look at some of the subcategories of retail trade that'll give us an early leading indicator on how the consumer is handling, particularly these inflation pressures that keep on lingering given the Iran conflict.
Yes, and you brought up an important point because when we're talking about the American consumer, we're still looking at higher for longer oil prices, paying at the pump here, inflation as well as rising costs.
So I think it's also key that we pay attention to where the hiring is coming from in terms of sector.
But what is the bottom line for the US economy, especially ahead of the inflation data coming out next week.
Well, certainly it gives the Fed a lot more ammunition and support to say they don't need to preemptively cut rates.
They'll keep rates steady.
I don't think that they're going to hike rates, although that is starting to be a little bit more in the narrative.
But the labor market is holding.
The economy is holding.
We had pretty decent.
Growth in Q1.
We expect about 1.8% GDP growth in Q2, perhaps another downshift in Q3 of 1.6% GDP growth.
But at this point, the labor market is holding steady enough, so the Fed doesn't need to be worried.
As it relates to just kind of a bottom line, where do we sit here?
We do think that there might be a little bit more pressure, particularly on the younger workers and the low skilled workers that do a lot of repetitive tasks.
They will most likely feel a little bit of the heat coming from greater AI utilization in the next several quarters.
Yes, we all know that the Federal Reserve does have this dual mandate, and for now the expectation is that inflation will remain elevated.
But on the heels of that labor market data, how will the battle of the birds as in doves versus hawks play out in the coming months as well as 2027?
Well, the rate setting committee is indeed a committee, so it's more than just the chair.
Just it's important for our listeners to be reminded, you know, we talk about Fed independence and influence from the president on the chair.
Well, no doubt there is influence from the president on the chair.
That happened in Greenspan's era.
In fact, he talks a lot about that.
Every Fed chair feels that, but it's a committee, meaning there are lots of members, and there are those that are doves, those that are hawks as you referenced, those that are more concerned about the upward risk of inflation, so they're going to be hawkish.
The doves are often those that focus on perhaps weakness in the labor market, hence they're going to want to ease up monetary policy.
At this point, I think the debate really will center around.
What kind of impacts will seep into other categories of consumer prices.
Outside of what we already know, and that is that the prices at the gas pump elevated remain elevated, we're starting to see some of these pressures seep into other categories.
That's going to be the main debate, I think, in the upcoming meeting as the committee puts forth their views, and they vote as committee, and I wouldn't expect more dissension like we saw the last Federal Open Market Committee event.
And Jeffrey, indeed we are counting down to the June Fed meeting, so we will be watching very closely.
But for Americans who are watching right now and they're watching the non-farm payrolls print as well as other economic data and in terms of their monthly budgets, they continue to see rates remain elevated, costs higher for longer.
So what would you tell the average American out there who's trying to balance their monthly budget?
Right, so I think it is important to admit, you know, average hourly earnings are not quite keeping up with the spike of inflation over the last couple of months.
Even in this most recent report, which covers the month of May, average hourly earnings 3.4% year on year growth.
That's under the 3.8% spike in inflation as measured by the CPI.
So I think consumers have to be careful budget.
Perhaps they're going to need to be patient instead of a big purchase of a ticket item, you know, or a travel event now in the next, you know.
In the near term, perhaps wait a little bit, wait for things to ease up, which I do expect things will look a little bit better by the end of the year or as we turn the calendar into 2027.
Don't expect the same kind of inflation pressures then as we have now.
Well Jeffrey, we will have to leave it there for today, but as always great talking to you.
Thank you so much for joining us today and thank you so much for weighing in on the latest jobs report.
Take care.
Thank you.
