Action-Packed Week

With a complete change from the prior two weeks, this week was full of important economic news that moved rates. We ended the week significantly better than where we started. Could this be the beginning of the downturn in rates? We certainly hope so. 

BLS July Jobs Report: Major Weakness Appears 

Job Growth Misses Estimates; Healthcare Dominates 

Friday’s Bureau of Labor Statistics (BLS) July Jobs report finally started to show some real weakness in the employment market. July’s seasonally adjusted jobs increased by 73,000 vs. the 110,000 expected. Almost the entire increase came from Health Care and Social Assistance jobs. These are not sectors that are influenced by economics. Poor economies don’t stop the need for nurses.   

 
Birth/Death Model: 200K Jobs Questioned  

Statistical Adjustment Suggests Job Losses

Remember that the Headline Jobs number comes from the BLS Jobs report’s Business/Establishment Survey component. This survey uses the Birth/Death model to estimate the creation (birth) and closure (death) of small businesses to project job creation and loss. As we have discussed, it is highly inaccurate and subject to wild swings in revisions.  

July’s model showed 257,000 jobs were created. Without this statistical projection, almost 200,000 jobs would have been lost this month.  

In fact, just a few days ago, we received the actual revisions to the Q4 2024 Birth/Death model. They were revised lower by 170,000 jobs.

Business Survey: Stunning Downgrades for May & June

258K Jobs Removed from Previous Months

The pièce de résistance of the entire Business Survey was the revision to the previous May and June reports. Both reports showed excellent numbers, and rates were sucker punched and went up. May was 144,000, and June was 147,000. Now, drum roll please, the BLS lowered these two numbers by 258,000 jobs. That means May is now 19,000, and June is 14,000. We likely would have been staring at lower rates and maybe even a rate cut by the Federal Reserve (Fed) with those numbers. Every month in 2025 has seen 77,000 fewer jobs on average after revisions.   

Household Survey: Unemployment Edges Higher 

Full-Time Job Losses Signal Deeper Trouble 

The unemployment rate is derived from the Household Survey component. This month, the unemployment rate increased from 4.1% to 4.2%. It was actually at 4.248%, so it was just a smidge under being rounded to 4.3%. That increase came from a report of 260,000 jobs lost and 38,000 people leaving the workforce. To make matters worse, 440,000 full-time jobs were lost, and 247,000 part-time jobs were gained. That is not a trend we want to see in a healthy economy. 

 
Fed Meeting: Surprise Dissenters Want Rate Cut

Two Fed Governors Push Back on Holding Rates Steady

This week saw the Fed meeting and the not-surprising decision NOT to cut rates. What was surprising from a historical perspective was that for the first time in 32 years, two Fed Governors dissented on the vote. Governor Bowman and Governor Waller wanted the rate cut, bucking the wishes of the rest of the committee. Bowman stated that she believes the tariff impact to be 0.3% of Core, making the effective Core rate 2.5%, not far from the Fed’s target and removing much of the reason for not cutting rates. During Chairman Powell’s press conference, he confirmed important points: rates are restrictive, tariffs are a one-off price increase, and the labor market shows zero private sector growth after applying revisions. Why are they not cutting rates? 

June PCE Report: Inflation Still Above Target

Core PCE Holds at 2.8% Year-Over-Year 

The Fed’s favorite measure of inflation, Personal Consumption Expenditures (PCE), was released and showed a rise of 0.3% in June, which was in line with expectations.   

The Core rate, stripping out volatile food and energy prices, rose by 0.3%, also in line with expectations. Yearly, the Core rate remained at 2.8%. The Fed’s target for Core PCE is 2%.   

Personal Income rose by 0.3%, slightly stronger than estimates, but spending rose only 0.4%, when the market was expecting 0.5%. 

June JOLTS: Job Openings and Hiring Drop 

Hiring Rate Near Decade Low; Quits Decline 

June JOLTS (Job Openings and Labor Turnovers) showed 275,000 fewer job openings, bringing the total to 7.437M, 113,000 lower than estimates.  

The Hiring rate fell to 3.3%, the second lowest level since 2013, excluding COVID-19.  

The Quit rate, which shows people quitting their jobs because they got a better one, is 2%, one of the lowest levels since 2018, excluding COVID-19. 

EU Tariff Deal: Key Trade Progress Made 

Significant Step, But Major Partners Still Pending 

Another large tariff agreement was set with the European Union. The EU has the second-largest economy after the US when considered as a whole. This was an important agreement. Some of the agreements remaining to be set are with China, Canada, Mexico, India, and Australia.   

Looking Ahead 

Market Looks for Rate-Friendly Follow-Through 

Next week is calmer than this week, but let’s hope we can continue to see additional rate improvement. 

Tuesday, August 5: 

• ISM Services 

Wednesday, August 6:  

• 10-year Treasury Auction 

Thursday, August 7:  

• Jobless Claims 

• 30-Year Auction