Recession Fears Rise and June Jobs Report Looms

The third quarter of the year has been greeted by investors with apprehension because there are worries of a recession. Therefore, the job report due on Friday can be a major catalyst for markets, then it would have been otherwise.

Data to make a difference

It will be a four-day week of trading, due to the Fourth of July holiday on Monday. Other than the jobs report on Friday, the minutes of the last policy meeting of the Federal Reserve are also due for release on Wednesday.

The nonfarm payrolls in June are expected to have slowed down from May when there was an addition of 390,000. However, a strong labor market and solid job growth are still expected. Economists are expecting the addition of 250,000 payrolls and the unemployment rate to continue to be at 3.6%.

However, employment data is expected to see a slowdown, as the tighter monetary policy of the US Fed is expected to squeeze employers and weigh on the economy. It is possible that Friday will highlight the labor market finally cracking under the pressure. Some slowdown would be considered positive, as that is what the Fed wants to achieve in order to curb inflation.

But, there is a difference between a less hot, slower job market and one that has cooled down. According to economists, a trend of 150,000 to 200,000 addition to nonfarm payrolls will still be strong, as it will be close to the levels before the pandemic.

There’s been some other data that has shown a slowdown, such as consumer spending. Analysts said that warning signs could be seen and the more prominent they become, the more the Fed will have to pay attention to slow down its pace. However, if the job numbers on Friday turn out to be strong, there could be a negative reaction in the market and the central bank would have to continue with aggressive hiking.

Impact of the Fed

Market analysts said that if the job numbers are stronger than expect and the Fed continues to be as hawkish as they sound, then the markets will have to pay the price. If the high-interest rates do not seem to be having any impact on the economy, then the Federal Reserve would not stop the hike. Therefore, one of the major barometers needs to reflect that it is working.

It is expected that the Fed will hike the interest rate by another 75 basis points in July’s meeting, but there is no clear prediction for the September meeting. Some analysts said that it is possible that the hike may be by 50 basis points in July, as the central bank could be sensitive to the tightening financial conditions and a slowing economy.

The job data will play a big role in this decision, but the US central bank has to consider that the chances of making a soft landing will go down if it continues to be as aggressive as it is now.