Brexit Casts Shadow Over Jobs Report, Interest Rate Decision
Last month's startlingly low 38,000 job gains was the talk of the markets until the even more shocking Brexit vote upended an already uncertain global economic environment.
Without Brexit, we'd be focused on Friday on whether June job gains were enough to put an interest rate hike back on the table in coming months. But that is no longer the world we live in, as Brexit's impact on international trading, labor flows, and hiring makes the Fed's decision on a rate hike even more complex.
In the short term -- and particularly for Friday's report -- the U.K.'s decision to leave the EU has little, if any, immediate consequence for the U.S. economy. But the impact will be felt by causing further delay to the Fed's interest rate increase, which may now be off the table for the rest of the year even if job gains improve. This is a good thing for borrowers, but it comes at the expense of savers who have long waited for higher interest rates.
What we have seen since the Brexit vote is increased interest in the U.S. job market from UK-based job hunters, which opens the possibility for employers to poach talent if they can get past visa restrictions.
Overall, though, firms are generally less likely to hire new workers if they're unsure of the economic environment of their home country or important trading partners. We'll have to wait until the August employment figures to see if general uncertainty is causing a pullback in hires.
Turning to the U.S. picture, another disappointing report Friday could constitute a downward trend that would signal concern for the Fed. A more likely scenario of a stronger number could indicate that the U.S. economy is bucking the slow growth pattern and that May's numbers were more of an anomaly.
We say more likely because we know historically that job gain numbers can occasionally come in far below average. If we look back two or three years, there's a sour jobs number every 15 months or so, and May could very well have been just a one month blip.
Right now, consensus forecasts have the labor market returning to stronger growth, with 180,000 new jobs expected. That's in line with our thinking, as we continue to see strong hiring demand from employers in Indeed job postings. However, we've seen that in previous months, without corresponding strong jobs report numbers-meaning that job openings aren't necessarily translating to hires in this economy.
This article is commentary by an independent contributor.