7/8- Weekly Economic Highlights

U.S. employers added more jobs in June than the consensus forecast of economists while the unemployment rate held steady at 3.6%, suggesting the labor market remains strong. Nonfarm payrolls rose 372,000 last month following a revised 384,000 in May. Job gains were broad-based and showed momentum is shifting toward the service sector with the leisure and hospitality sector adding 67,000 jobs. Average hourly earnings growth fell to 5.1% year-over-year in June from 5.3% in May, a possible sign of lower wage pressure moving forward. However, one area of concern in an otherwise solid report was the decline in the participation rate, which crept down to 62.2% in June versus 62.3% in May. Federal Reserve (Fed) policy makers concluded at their June meeting that there may not be much improvement on labor force participation for some time. The hope and expectation had been that workers would return to the job market, but this report suggests a slower pace for workers returning to the labor market.

Meanwhile, both U.S. Factory and Durable Goods orders in May were above the consensus estimates of economists and above the prior month’s reading. The ISM Services Index fell to 55.3 in June from prior months reading of 55.9 but remained above 50, signaling continued expansion in the services sector. Gains in the service sector were widespread, with 18 service industries reporting growth.

Market participants pushed U.S stock prices higher this week while Treasury yields trend higher leading up to today’s labor market report. The Treasury curve remains flat and yields are higher across the curve, with the 2-year at 3.10%, 5-year at 3.11%, and 10-year at 3.08% as of Friday morning. According to Bankrate.com, the effective rate of a 30-year fixed rate mortgage rose to 5.72% this week. Financial markets remain volatile as global central banks transition their policies to combat inflationary pressures.

Next week’s economic releases include several data points related to inflationary trends across the economy including the Consumer Price Index (CPI) by the Bureau of Labor Statistics on Wednesday, followed by the Producer Price Index (PPI) on Thursday which will undoubtedly influence the direction of the Federal Reserve’s monetary policy and outcome of the upcoming Federal Open Market Committee (FOMC) meeting this month. Federal Reserve Governor Christopher Waller and James Bullard, president of the St. Louis Fed made public statements backing a 0.75% increase in the federal funds rate at this month’s FOMC meeting to curb inflation. Both are voting members of the FOMC this year. The Chandler team expects a continued reduction in Fed’s monetary policy accommodation through additional hikes in the federal funds rate at their July 27^th and upcoming FOMC meetings.

Next Week:

NFIB Small Business Optimism Index , Consumer Price Index (CPI), US Federal Reserve Beige Book, Producer Price Index (PPI), US Empire State Manufacturing Survey General Business Conditions, US Industrial Production, Retail Sales, University of Michigan's Sentiment Index

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© 2022 Chandler Asset Management, Inc. An Independent Registered Investment Adviser. Data source: Bloomberg, Federal Reserve, and the US Department of Labor. This report is provided for informational purposes only and should not be construed as specific investment or legal advice. The information contained herein was obtained from sources believed to be reliable as of the date of publication, but may become outdated or superseded at any time without notice. Any opinions or views expressed are based on current market conditions and are subject to change. This report may contain forecasts and forward-looking statements which are inherently limited and should not be relied upon as an indicator of future results. Past performance is not indicative of future results. This report is not intended to constitute an offer, solicitation, recommendation, or advice regarding any securities or investment strategy and should not be regarded by recipients as a substitute for the exercise of their own judgment. Fixed income investments are subject to interest rate, credit, and market risk. Interest rate risk: The value of fixed income investments will decline as interest rates rise. Credit risk: the possibility that the borrower may not be able to repay interest and principal. Low-rated bonds generally have to pay higher interest rates to attract investors willing to take on greater risk. Market risk: the bond market, in general, could decline due to economic conditions, especially during periods of rising interest rates.