The Economy Added Fewer Jobs Than Expected. It Is a Boon For Wall Street

Stocks are climbing on Thursday after the latest job report showed a decline in hirings in June as investors now believe there is a lower chance the Federal Reserve will hike interest rates.

Concretely, the S&P 500 climbed 0.73%, the tech-heavy Nasdaq Composite did so by 0.82% and the Dow Jones Industrial average climbed 0.57% at 10:04 a.m. ET. CNBC noted that the 2-year Treasury note yield fell after the report came out.

Nonfarm payrolls for June increased by much less than expected in June, according to new data from the Bureau of Labor Statistics.

Concretely, nonfarm payrolls increased by 57,000, less than half the 115,000 expected by the Dow Jones consensus forecast.

However, the unemployment rate dropped to 4.2%, slightly ahead of the 4.1% than the same period a year ago.

CNBC explained that the drop was explained by a lower labor force participation rate, which was 0.3 percentage points lower and clocked in at 61.5%, the lowest since March 2021.

Leisure and hospitality reported 61,000 fewer jobs, with the BLS said was a result of of lower seasonal hiring even despite the World Cup taking place in the country.

In contrast, professional and business services gained the most jobs for the month, climbing by 36,000. Social assistance increased by 25,000 and health care by 22,000.

Investors are analyzing different aspects of the U.S. economy to make their moves. At the same time, Federal Reserve Chairman Kevin Warsh declined to give guidance about the central bank’s next decision on interest rates but did give a potential hint by saying inflation is running too high.

“We’re all in the price stability business, that might not be our only business, but if there was a common thing I heard over the last couple of days, it was open-mindedness on these questions of AI, open-mindedness on productivity, but we’ve all looked around, and we’ve seen that prices are too high,” Warsh told CNBC during a forum held by the European Central Bank in Portugal this week.

The comments echo those of other Fed officials who have also claimed inflation is high at the moment. Chicago Federal Reserve President Austan Goolsbee said last week that inflation remains the central bank’s biggest concern despite some improvement in services prices as policymakers continue to assess the impact of elevated energy costs on the U.S. economy.

Cleveland Fed President Beth Hammack also said this week that the AI boom could fuel price increases.

Should that scenario continue, and other factors putting pressure on prices don’t let up, policymakers could raise interest rates, she told CNBC.

“We’ve got inflation that’s too high, and it’s been too high for the past five years,” Hammack said. “When I look at policy, if that continues, it may mean that we need higher interest rates to bring inflation back down to target.”