Soft Jobless Claims, ADP Keep Fed Rate Cuts On Track

The ADP employment report showed the private sector added 150,000 jobs in June, a bit below expectations. While ADP isn’t a great predictor of what Friday’s official jobs report will show, initial claims for jobless benefits edged past expectations, adding to the softer picture. S&P 500 futures remained fractionally lower despite the data’s support for Federal Reserve rate cuts.

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This Is How The Jobs Report Data Influences The Fed And Interest Rates

Other potentially market-moving releases today include the Institute for Supply Management service-sector activity index, out at 10 a.m. ET. Minutes from the June 12-13 Fed meeting are due at 2 p.m. ET, after the half-day market session ends.

ADP Jobs Report

ADP’s estimate of a net 150,000 gain in private-sector jobs last month trailed Wall Street’s 161,000 forecast.

The payroll processing firm revised May’s gain to 157,000 from the initially reported 152,000.

ADP’s May report didn’t come close to the Labor Department’s official total of a 229,000 gain in private jobs. Including government jobs, the government estimated 272,000 new jobs in May.

Friday’s official jobs report is expected to show that employers added 189,000 jobs in June, including 160,000 private-sector payroll jobs, according to Econday.

The unemployment rate is seen holding at 4%, while the 12-month rate for average hourly wage growth is seen dipping to 3.9% from 4.1%.

Initial Jobless Claims

New claims for jobless benefits rose 4,000 to 238,000 in the week through June 29. The four-week average of claims climbed 2,250 to 238,500. That’s the highest in nine months.

Continuing claims for jobless benefits rose by 26,000 to 1.858 million in the week through June 22.

Fed Rate-Cut Outlook

Fed Chairman Jerome Powell said on Tuesday that the path two months of data show “we’re getting back on a disinflationary path.” But policymakers need at least a couple of more months of tame inflation data. Just how tame depends on what happens with the job market. An unwanted weakening of the labor market could prompt a quick pivot to rate cuts without more disinflation progress. However, strong job growth would probably require monthly increases of no more than 0.2% in the core PCE price index for the Fed to cut its key rate at the September meeting.

After jobless claims and the ADP jobs report, markets are pricing in 66% odds of a quarter-point Fed rate cut on Sept. 18, up slightly from 65% before the releases, according to CME Group’s FedWatch page. Markets now see 64% odds of two quarter-point cuts by the end of 2024, up from 61%.

S&P 500

S&P 500 futures dipped 0.1% after the ADP jobs report and jobless claims in early Wednesday stock market action. The S&P 500 rose 0.6% on Tuesday to finish at an all-time closing high for the 32nd time this year. The S&P 500 is up 15.5% year to date.

The 10-year Treasury yield fell seven basis points to 4.41% after the jobless claims and ADP data.

Be sure to read IBD’s The Big Picture column after each trading day to get the latest on the prevailing stock market trend and what it means for your trading decisions.

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