At the ECB conference in Portugal, Chairman Warsh refused to provide forward guidance after repeated questions from moderator Sara Eisen, since that is the new Fed policy. The more significant thing Warsh said is that the Fed would let the financial markets dictate Fed policy, so essentially, if Treasury yields decline, the would follow and cut key interest rates. This was not an outrageous statement by Warsh, and an acknowledgement that the bond vigilantes (large institutional investors) remain in charge of influencing Treasury yields and central bank policy.
The Labor Department on Thursday announced that only 57,000 were created in June, which was far below economists’ consensus estimate of 115,000. A large drop in leisure and hospitality of 61,000 (largest monthly decline since 2020) was largely responsible for the lower-than-expected June payroll report. The Labor Department said the drop in leisure and hospitality workers reflected “weaker than usual seasonal hiring.”
The good news is that manufacturing and construction employment both increased, which is indicative of the AI data center building. In June, average hourly earnings rose by 13 cents or 0.3% to $37.64 per hour and have risen 3.5% in the past year. Treasury yields declined slightly in the wake of the weaker-than-expected June payroll report.
Fully 14 of the 17 manufacturing industries that surveyed reported an expansion, which is a good sign. The Institute of Supply Management (ISM) announced that its manufacturing index slipped to 53.3 in June, down from 54 in May. Any reading above 50 signals an expansion, and this is the sixth month in a row that the ISM manufacturing index has been expanding.
The new orders component remained strong at 56 in June, down from 56.8 in May. Interestingly, the price component plunged to 73 in June, down from 82.1 in May. This was the largest monthly drop in the price component in almost four years (since July 2022) and is signaling that commodity inflation is cooling off.