June Jobs Report: Will Lack in Supply of Qualified Workers Increase Interest Rates?

With the release of the June Jobs Report tomorrow, July trading may be off to a volatile start. Economists’ consensus estimates 675,000 new jobs were added in June, the range of those estimates however varies from 500,000 to 1,000,000. With a large addition to the workforce, the unemployment rate is expected to fall to 5.7% from 5.8%, not a large shift, but a move in the right direction.

One interesting data point is the year-over-year average hourly earnings, which is expected to come in at 3.1% compared to 2.0% last month. This continues the theme of inflation and inflationary forces the economy is seeing at the moment. The Federal Reserve has acknowledged this and thinks the recent surge is transitionary and not concerning…yet. However, this is a key number to monitor since an increase in hourly wages will almost certainly lead to increased rates from the Federal Reserve as they try to bring inflation under control. Increased rates are not good for stocks and bonds since it would likely mean the end of the Fed’s easy monetary policy.

The increase in wages can also be attributed to the lack of supply in the labor market at the moment. More and more reports are detailing the difficulty of hiring qualified workers. When this happens, the best way to attract talent is to increase wages and so go wage growth and inflation. What’s concerning is the lack of supply in a labor market after so many jobs were lost to the pandemic.

One would expect employment opportunities to come back as the economy is open and humming again. A few possible explanations could be organizations have innovated and can run a leaner operation, thus requiring less labor in prior years. It’s also possible there is a population of workers that simply don’t want to return to work yet and are leaving a void of skilled workers or they don’t feel the compensation and benefits are worth their time at the offered rates.

There is a multitude of reasons a lack of supply exists in the current job market, but as the saying goes everyone has a price. As firms continue to hire and search for qualified candidates, wages will increase if the labor supply remains thin. With wage increases, we will ultimately see interest rate increases and tightening from the Federal Reserve. Bond and Equity prices will come under pressure, with higher growth assets seeing the worst as the multiple compression is the most significant in those equities. This is the constant game of tug of war between the labor market, the economy and the stock market. The role of the employment report is to show which group has been winning over the prior month.

News events such as jobs reports and announcements by the Federal Reserve can stir volatility in markets and traders should prepare accordingly. For up-to-date information regarding futures contract expirations, news announcements & more, visit the NinjaTrader Trade Desk Calendar.

Source: https://ninjatrader.com/blog/june-jobs-report-will-lack-in-supply-of-qualified-workers-increase-interest-rates/