In Attendance Day

US added more jobs than expected

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What's going on?

Data out on Friday showed that the US economy added 224,000 jobs in June – far more than economists expected.

What does this mean?

After a strong March and April, May’s job additions were much lower than forecast – and investors were eager to see whether the blip became a trend. Crucially, given the US Federal Reserve’s (the Fed’s) responsibility to drive maximum employment, Friday’s report will also help determine what the central bank does to the country’s interest rates later this month. Investors had expected just 160,000 new jobs to be added last month, so the US economy may be on a stronger footing than thought.

Why should I care?

For markets: There’s good news and bad news.

According to analysts at Bank of America, better-than-expected job additions will probably lead to the Fed leaving rates unchanged. Investors had been buying up stocks and government bonds of late, partly due to a growing belief that the Fed would soon lower rates. That would encourage cheaper borrowing, boosting both the economy and company profits – as well as making new bonds appear less attractive than existing ones. But investors reversed course on Friday, selling both stocks and bonds. On Wednesday, investors foresaw a 30% chance of a rate cut this month; that’s now 11% (tweet this).

The bigger picture: Slip inside the eye of companies’ minds. 

Friday’s jobs update also gave investors (and the Fed) an insight into what companies are thinking. A surprise increase in the unemployment rate last month may suggest businesses have adopted defensive positions, offering fewer roles in anticipation of weakening demand. While it appears that the rise was partly due to more people declaring themselves available for work, a slightly lower-than-expected increase in wages may also suggest less enthusiastic hiring. The flip side to that is likely slower inflation – but it’s probably not enough to force the Fed into lowering rates immediately. And with that, analysts may now revisit their assumptions for companies’ profits this year…

Originally posted as part of the Finimize daily email.

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