NEWS AND INSIGHTS | INSIGHTS

CIO Notebook: June Payrolls Strong but Revisions Underscore Concerns

July 05, 2024
Shannon Saccocia, CFA, Chief Investment Officer—Private Wealth

Concerns about the Fed staying too tight for too long have garnered greater attention over the past few weeks as evidence has mounted that disinflation is back on track.

The June non-farm payrolls release indicated that the U.S. economy added +206k jobs in the month, well ahead of the consensus for +190k jobs. Driving this month’s gains were government hiring, health care, social assistance, and construction which added +70k, +49k, +34k, and +27k, respectively. Hiring was essentially flat outside of these sectors, although it is worth pointing out a divergence in retail hiring as general merchandise retailers and supercenters added employees while more discretionary retailers cut staff.

The unemployment rate rose incrementally from 4.0% to 4.1% (4.054% rounded) in June, driven in part by an increase in the participation rate from 62.5% to 62.6%. Wages grew by +0.3% month-over-month and +3.9% year-over-year, still well ahead of the Federal Reserve (Fed)’s preferred level but moving in the right direction. Hours worked were flat once again at 34.3 hours, with manufacturing employees continuing to work in excess of 40 hours a week.

While the headline figure was ahead of consensus, the details are consistent with other, softer data released over the last several weeks. For non-farm payrolls, the trailing 12-month average fell to +220k following two sizable revisions to April and May data, as April’s print was revised lower by -57k to +108k and May’s was revised down by -54k to +272k. The number of unemployed persons, as reflected in the household survey, rose by +162k despite the growth in payrolls. Time to find a job increased to 9.8 weeks from 8.9 weeks in the prior month -- its highest level since early 2022.

Concerns about the Fed staying too tight for too long have garnered greater attention over the past few weeks as evidence has mounted that disinflation is back on track. In our view, this report will likely trigger another spate of calls for the Fed to finally move rates lower at their upcoming meeting in September and set up the potential for two rate cuts in 2024, which is our expectation. Telegraphing that decision will be Fed Chair Jerome Powell’s job over the next eight weeks and with a meeting in late July and the Jackson Hole Economic Symposium in late August, we believe he should have plenty of airtime to work with.

Equities were higher to start the day while bond yields fell in response; the CME FedWatch tool now indicates an almost 72% chance that the Fed will take their first step towards greater accommodation in the September meeting.

IMPORTANT INFORMATION:

This material is provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This material is general in nature and is not directed to any category of investors and should not be regarded as individualized, a recommendation, investment advice or a suggestion to engage in or refrain from any investment-related course of action. Any views or opinions expressed may not reflect those of the firm as a whole. Neuberger Berman products and services may not be available in all jurisdictions or to all client types. Diversification does not guarantee profit or protect against loss in declining markets. Investing entails risks, including possible loss of principal. Investments in private equity are speculative and involve a higher degree of risk than more traditional investments. Investments in private equity are intended for sophisticated investors only. Unless otherwise indicated, returns shown reflect reinvestment of dividends and distributions. Indexes are unmanaged and are not available for direct investment. Investing entails risks, including possible loss of principal. Past performance is no guarantee of future results.

Portfolio positioning views expressed herein are those of Neuberger Berman’s Private Wealth Investment Group, which may include those of the Neuberger Berman’s Asset Allocation Committee. Asset allocation and positioning views are based on a hypothetical reference portfolio. The Private Wealth Investment Group analyzes market and economic indicators to develop asset allocation strategies. The Private Wealth Investment Group works in partnership with the Office of the CIO. The Private Wealth Investment Group also consults regularly with portfolio managers and investment officers across the firm. The Asset Allocation Committee is comprised of professionals across multiple disciplines, including equity and fixed income strategists and portfolio managers. The Asset Allocation Committee reviews and sets long-term asset allocation models, establishes preferred near-term tactical asset class allocations and, upon request, reviews asset allocations for large diversified mandates. Asset Allocation Committee members are polled on asset classes and the positional views are representative of an Asset Allocation Committee consensus. The views of the Asset Allocation Committee and the Private Wealth Investment Group may not reflect the views of the firm as a whole and Neuberger Berman advisers and portfolio managers may take contrary positions to the views of the Asset Allocation Committee or the Private Wealth Investment Group. The Asset Allocation Committee and the Private Wealth Investment Group views do not constitute a prediction or projection of future events or future market behavior. Defensive positioning generally means an underweight bias on allocations to risk assets such as equities and alternatives.  Positioning views may change over time without notice and actual client positioning may vary significantly. Discussion of yield characteristics or total returns of different asset classes are for illustrative purposes only.  Such asset classes, such as equities and fixed income, may have significantly different overall risk-return characteristics which should be consider before investing.

The information in this material may contain projections, market outlooks or other forward-looking statements regarding future events, including economic, asset class and market outlooks or expectations, and is only current as of the date indicated. There is no assurance that such events, outlook and expectations will be achieved, and actual results may be significantly different than that shown here. The duration and characteristics of past market/economic cycles and market behavior, including any bull/bear markets, is no indication of the duration and characteristics of any current or future be market/economic cycles or behavior. Information on historical observations about asset or sub-asset classes is not intended to represent or predict future events. Historical trends do not imply, forecast or guarantee future results. Information is based on current views and market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons.

Discussions of any specific sectors and companies are for informational purposes only. This material is not intended as a formal research report and should not be relied upon as a basis for making an investment decision. The firm, its employees and advisory accounts may hold positions of any companies discussed. Nothing herein constitutes a recommendation to buy, sell or hold a security. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. Investment decisions and the appropriateness of this content should be made based on an investor's individual objectives and circumstances and in consultation with his or her advisors.

Neuberger Berman Investment Advisers LLC is a registered investment adviser.

The “Neuberger Berman” name and logo are registered service marks of Neuberger Berman Group LLC