June was another strong month for the labor market, but some cracks are beginning to appear. The U.S. added 206,000 jobs in June, more than estimated, but the second lowest number this year. As has been the case for four out of five months this year, May’s 272,000 job gain was revised substantially lower. Government and health care accounted for more than half of the jobs added. More concerning was the third monthly increase in the unemployment rate, rising to 4.1%, the highest since November 2021. Granted, the rise was due to more people entering the labor force, but high unemployment is not what anyone wants to see. Hourly earnings fell on both a monthly and year-over-year basis, 0.3% and 3.9% respectively. With inflation stabilizing and the labor market showing signs of weakening, the data is beginning to suggest the Fed may cut rates in September to prevent further deterioration.

FOMC Minutes – The minutes from the June FOMC meeting provided insight into how the officials view the current level of monetary policy. It is simple - most participants view policy as being restrictive. Where to go from here, though, brought differing opinions. Many officials emphasized the need for patience in allowing high rates to continue to restrain demand. Several participants noted that if inflation were to remain elevated or increase further, rates “might need to be raised.” On the other hand, a number of participants remarked that “monetary policy should stand ready to respond to unexpected economic weakness,” especially in the labor market. Either way, the minutes were clear that committee members do not expect to lower borrowing costs until “additional information had emerged to give them greater confidence” that inflation was moving toward their 2% goal. As of the June meeting, the committee believes the economy is gradually cooling and inflation is moving in the right direction.

ISM – Weakness is starting to show in all sectors of the economy. The Institute of Supply Management (ISM) survey reported contraction in both the manufacturing and services industries in June. Economists weren’t overly surprised to see the ISM manufacturing index fall for the third month in a row and remain in contraction territory but were concerned when the services index fell five points to the lowest level in four years. June was the second month this year that the services sector contracted. Prices paid were lower for both sectors but remain above 50, which is associated with price increases. Survey respondents from both areas of the economy reported demand remains subdued due to high interest rates, uneven consumer spending and unwillingness to invest in inventory and capital.