Pro Perspectives 7/9/24





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July 09, 2024

The Fed Chair gave testimony to Congress today.  And he was careful not to send the market a signal on the timing of a rate cut.
But as we discussed yesterday, the Fed has told us a condition for a policy response (i.e. a rate cut).  It's any "crack" in the labor market.
And with that, as we discussed yesterday, the unemployment rate in June ticked UP to 4.1%. And, importantly, the rate-of-change in the unemployment rate since the cycle low 14-months ago is at a pace consistent with the past four recessions, and (related) consistent with a Fed easing cycle
Now, interestingly, the San Francisco Fed released a study yesterday afternoon on the effect of immigration on the jobs data.
To put it simply, based on the CBO's high immigration scenario, the study says, in the short run, the economy needs to grow jobs by 230k a month to keep the unemployment steady.  If we look back at the first seven months of last year, when the unemployment rate was holding steady, the job creation averaged 253k a month (higher than the study estimates).
That number has averaged only 212k since August of last year, and the unemployment rate has jumped from 3.5% to 4.1%.
What was clear in today's discussion between Jerome Powell and the Senate Banking Committee, is that the Fed hasn't had a handle on how the mass immigration of the past three years has effected the labor supply.  This recent study would suggest the supply is bigger than they have assumed.  That's why the unemployment rate is rising, despite what looks like solid job gowth.  There are indeed cracks in the labor market.