Otherwise engaged. If you were going to pick one week to pay attention to the labor market, last week was the one. The Fed, whose part-time obsession with the labor market, was surely paying attention. Keeping the labor market healthy is one of only two responsibilities shouldered by the Central Bank, keeping inflation in check is the other. The latter is in relatively good shape but can possibly rise in months ahead due to tariffs. With the possibilities of price gains, the Fed is in no position to be considering further rate cuts, UNLESS the labor market collapses.Such a collapse has been anticipated by naysayers for many months now, but, alas, no collapse has been forthcoming. To be clear, the labor market is not in its best form, having been far stronger in the past, but given the circumstances, it has been holding up, and last week would be an important checkup. Here’s how it shook out.JOLTS Job Openings is somewhat of a laggy indicator, but it is an important one nonetheless. It is not a highly followed number, rarely moving the markets on its own, but econo-nerds (like me 🤓) follow it closely for trends. My take on the JOLTS number, which exceeded economists’ estimates showing 7.392 million job openings, is that it shows a stable labor market with more vacancies than prior to the pandemic. It is in this release that we can see that there are currently 245,000 durable goods manufacturing job openings, which always leaves us wondering if the Administration’s tariff policy is to create more manufacturing jobs in the US, who will actually fill them. In fact, traditional labor economics teaches us that the more job openings, the tighter the labor markets. Tight labor markets, where negotiations favor laborers not companies, cause labor costs to rise, a key catalyst for inflation. Confusing, right? But don’t worry, because the number has been trending down, indicating that either vacancies are getting filled, or companies are slowing hiring… or both.Midweek ADP released its Employment Change number showing a big miss on the downside, a downward revision for the prior month, and month over month decline. It was indeed a big miss, and it certainly caught the eye of Fed Futures traders who speculate when the Fed may change rates and by how much. The weak ADP number increased the market’s expectation for rate cuts later in the year. Because ADP’s release coincides with the Bureau of Labor Statistics’ (BLS) monthly release, traders try to use it to predict the later-in-the week “official” release, though the two are rarely in sync with each other.Weekly, first-time, unemployment claims came in higher than expected and higher than the prior week’s release. Remember that bigger is not better when it comes to people applying for unemployment benefits. Last week’s release was above its 4-week moving average, expressing a possible early sign of a bigger upside move. Also, as part of this series by the Department of Labor, we get Continuing Claims, which shows the total number of workers claiming unemployment benefits, and that total is growing. Here too, more is not good. Expect this number to get more focus in the weeks ahead.On Friday, we finally got the monthly BLS numbers which showed the unemployment rate steady at 4.2%, as expected. Nonfarm payrolls showed 139k new hires for the month. It was more than the expected 126k. The prior month’s number was revised downward. With this number, more is good, and negative is bad (it means net jobs lost). Now, on the surface, the headline number contradicts the earlier-in-the-week ADP release, but a downward revision of the prior month takes away from the beat. Further, we can dig into the number and see that the bulk of the new hires came from Education and Health Services. While both contributed, healthcare had the largest additions. The biggest losses occurred in Administrative services. Net losses also occurred in Mining & Lodging as well as Manufacturing. Specifically, Durable Goods manufacturing. This is somewhat consistent with the JOLTS observations, though JOLTS lags by a month.So, is the labor market solid or not? That is a reasonable question given all the conflicting data sources. Being that “kind of” is not a choice, I would have to say that it is solid. Markets thought so too, as Fed Funds futures quickly lowered rate cut estimates by year end. Prior to Friday’s release, Fed Funds futures had a 100% chance of two 25 basis-point cuts by the end of the year, but those chances changed drastically after the release only giving a 77% chance of a second rate cut. On Wall Street, 77% is still considered good odds, though you can’t beat 100%.The net of it is that the labor numbers came in strong enough for markets to call it “solid” for the economy. Stocks rose and so did bond yields across the curve. Rising bond yields are the result of improved expectation for future economic growth. This morning, there are certainly those who are waking up disappointed that the Fed is less likely to lower rates after the strong employment numbers. There is something you have to understand with Fed policy. It doesn’t have to be always raising and lowering rates. Indeed there are times where doing nothing is the only logical path, and that is likely going to be the Fed’s path next week when the FOMC meets. The best we can hope for is that the Fed is a bit more forthcoming with what exactly would trigger further cuts… or not. We will just have to wait and see. In the interim, we will get important inflation figures later this week. The Fed will also be watching those numbers carefully, though its favorite inflation gauge is the PCE Price Index. Investors will be juggling the Fed’s next move, interest rates, trade negotiations, and the now-controversial Big Beautiful Bill to inform this week’s trade. Stay sharp, because volatility is going to be doing its best to knock you down.FRIDAY’S MARKETSStocks gained on Friday after monthly jobs numbers didn’t come out as ugly as they could have. “It could have been worse,” admitted traders as they mashed their BUY buttons. Longer bond yields jumped and the Fed got permission to extend its summer vacation.
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