US Macro Insights: June 2025 NFP Preview
Everything has to go "perfectly" (i.e. a weak jobs report) for the Fed to cut in July
Summary: Slower immigration growth has likely brought breakeven employment growth down to 100k or lower, where lower monthly job gains won’t always drive up the unemployment rate. However, the persistent rise in continuing claims (especially in early June) points to an increasingly weak hiring environment where growth in the number of reentrants to the labor force can apply upward pressure on the U/R. The labor market has, so far, been able to maintain low levels of layoffs, but job losses and separations are largely lagging indicators where upward trends only become apparent after a recession. While recession odds have decreased lately, and broad-based job losses are not the base case, the risk is still out there. Meanwhile the Birth-Death Model may overstate the small business job activity (which was negative in ADP). Overall, we continue to expect the jobs market to materially weaken over the summer.
Market Implication: We acknowledge that Thursday’s jobs numbers, which is odd in and of itself and hard to speak of (we miss our NFP Friday), have to be very weak to get the Fed to fully pivot and deliver a July rate cut. Specifically, an NFP closer to zero or a negative print along with a 4.4% or higher unemployment would push up the July probabilities well above 50/50, putting pressure on the Fed to shift course. But a consensus number will not be enough for the markets to keep driving front-end rates lower, whereas markets may still rally on a mixed NFP but shift the burden to inflation releases and continued news of trade deals.
