June consumer confidence rose modestly, JOLTS job openings beat estimates at 7.594 million, and futures markets now price 65.6% odds of a September rate hike ahead of Thursday's payrolls data.
A duo of reports released Tuesday morning vouched for the U.S. economy’s resilience, sending a hawkish signal to the Federal Reserve under its new Chair Kevin Warsh. Consumer confidence rose in June, albeit by less than expected in June, while job openings remained steady, reinforcing the strength of the labor market.
The reports offered little evidence that higher interest rates or recent geopolitical uncertainties have materially dented economic activity. Instead, they suggested that households and businesses remain broadly resilient, a backdrop that could complicate the Fed’s efforts to ensure inflation returns sustainably to target.
Consumer Morale Holding Up
The Conference Board’s June survey showed a small increase in consumer morale, with the headline index edging up 0.6 points to 91.2 from a downwardly revised reading of 90.6 for May.
Source: Conference Board
'Responses were collected between June 1 and 23, which encompasses the period that saw the extension of the U.S.-Iran ceasefire following a peace deal.
A positive development was an increase in the expectations index, which rose by 3 points to 74.4. On the other hand, the present situation index fell 3 points to 116.4.The divergence between the expectations and present-situation measures suggests consumers are becoming more optimistic about the future even as their assessment of current conditions softens. This could indicate that falling energy prices and easing geopolitical tensions are helping improve sentiment despite persistent concerns about affordability and borrowing costs.
Conference Board Chief Economist Dana Peterson confirmed the same. The economists attributed the improvement in the headline consumer confidence index to falling oil prices, which relieved some of consumers’ inflation fears.
The survey found that consumers’ assessment of the current labor market softened measurably as the percentage of consumers saying jobs were ‘hard to get’ rose to 22.5%, the highest level since January 2021. They were not very positive about the labor market outlook for six months ahead. The softness was offset by improving expectations for business conditions and incomes.
The labor-market findings are noteworthy because consumer perceptions of job availability often deteriorate before weakness becomes visible in official employment data. While the survey does not point to an imminent labor-market downturn, it suggests households are becoming more cautious about employment prospects.
Consumers’ average and median 12-month inflation expectations were less elevated. Most consumers (61.5%) still expected higher interest rates over the next 12 months.
Source: Conference Board
Job Market Steady
Separately, the Bureau of Labor Statistics’s (BLS) Job Openings and Labor Turnover Survey (JOLTS) results showed job openings remaining nearly flat at 7.594 million in May, slightly higher than the downwardly revised 7.585 million reading for April. Economists had braced for a decline in job openings to 7.280 million. The upside surprise in job openings indicates that labor demand remains sturdier than anticipated, reinforcing the view that businesses are still looking to expand payrolls despite restrictive monetary policy.
The report also showed that the number of hires and the rate of hires also remained unchanged at 5.2 million and 3.3%, respectively, in May. Federal government hires increased by 11,000.
Meanwhile, separations also changed little, at 5.1 million and the rate of separations also remained unchanged at 3.2%. Taken together, the hiring and separation figures portray a labor market that is cooling only gradually rather than deteriorating sharply. Such stability is unlikely to alleviate the Fed's concerns about lingering wage and inflation pressures.
What's Next for Fed, Market
For the Fed, the data are unlikely to provide compelling evidence that the economy is slowing sufficiently to warrant a near-term policy pivot. Futures traders currently price in a 68.5% probability of a status quo stance at the July meeting but the odds of a hike are at 65.6% at the September. Consequently, the upcoming labor-market reports assume even greater significance, as another round of firm employment data could further solidify expectations that the Fed's next move will be a rate hike rather than a rate cut.
The market now turns its attention to Wednesday’s private payrolls report due at 8:15 a.m. on Wednesday and the June non-farm payrolls (NFP) report scheduled to be released at 8:30 a.m. on Thursday.
The crucial numbers to watch in the NFP report are:
- June non-farm payroll growth: 114,000 consensus Vs. 172,000 growth in May
- Jobless Rate: 4.3% consensus, same as in May
- Average hourly earnings’ YoY growth: 3.5% consensus Vs. 3.4% in May