We asked traders about the June jobs report and the Fed's next steps

July 19, 2016 12:45 PM
Strong Jobs Data

Strong Jobs Data

With the optimistic look of the June jobs report coming after a miserable May spending report, many are hoping this means lower interest rates from the Fed. However, some argue that the jobs report isn't revealing the entire picture of the U.S. economy and, therefore, find the Fed will take action independent of the reports released, which will instead be affected by other economic factors such as the Brexit. 

To help us get a better idea of how to sort through all the information, we asked traders, Does the strong job data for June mean the bad May numbers was an anomaly so the Fed can tighten as soon as July? Or is the Fed on hold indefinitely?

Here's what they said...

Daniel Gramza

I do not anticipate that the Fed will increase interest rates in July.

To explore when the Federal Reserve may increase interest rates, we must consider why they would raise interest rates. A primary reason for the Federal Reserve to increase interest rates is their effort to control inflation, which is one of the Federal Reserve mandates, along with maintaining full employment and price stability.

Because of a lack of wage growth, current low U.S. inflation rate, global economic environment and the unknown extent of the Brexit economic impact on the U.S., UK and European Union, my expectation is that the Federal Reserve will not increase interest rates until possibly at the September or December meeting. If inflation stays below 2%, I believe there is a very distinct possibility the Federal Reserve will not increase interest rates at all in 2016.

Dan Gramza is President of Gramza Capital Management Inc. and DMG Advisors, LLC.  He provides daily market updates from around the globe on subjects ranging from the Nasdaq and currencies to crude oil and grains

Carl Larry @oiloutlooks

It is strange that the Fed voiced such concern over the labor market when it now looks like a one-off anomaly. This hop up, though, should be considered as much as a leap of faith.  We’re likely to see the Fed remain cautious especially post-Brexit. One still has to consider that Yellen is still at the helm. Asking her to raise rates is like asking Kim Kardashian to give up Instagram.

Carl Larry is a director and business development consultant for oil and gas at Frost & Sullivan. He provides daily oil market guesstimates with a dose of pop culture.

Alan Rohrbach @MacroMeister

Is this a U.S. jobs explosion? Well, not exactly. 

In near term the June U.S. Nonfarm Payrolls (NFP) gain of 287,000 jobs defuses the thought that the U.S. economy was slipping into a very weak condition. That is even after the weak 38,000 job gains in May was revised down to only 11,000. 

Yet all of that volatility (partially based on a strike in May that was over in June) leaves no option but to average these U.S. employment figures to arrive at a realistic view. In spite of June gains, that is not necessarily very encouraging. The dilemma is that the three-month average is still only back up around 150,000 job gains per month. That is down from a three-month average that was over 200,000 in late 2015 and around 200,000 into early 2016. 

150,000 job gains per month is not the sort of figure that supports the idea the U.S. economy will expand further after the GDP recovery into Q2 from another weak Q1. 

Ultimately, it is all about the corporate earnings situation. Companies earning more money tend to hire and pay workers more. Yet, it is clear that the U.S. economy has been in somewhat of a corporate earnings recession, and they are due to slip further in coming months. Monthly hourly earnings slipping back to just 0.10% in June is also a weak sign. 

The U.S. employment situation likely only really improves if there is a surprise rise in corporate earnings. That will likely be a key factor for the Fed. And we will know more about it very soon.

Alan Rohrbach is Lead Analyst and President of Rohr International, Inc.  He is an international equity index, interest rate and foreign exchange trend advisor. His forte is ‘macro-technical’ analysis of how fundamental influences blend with technical aspects to drive trend psychology. Clients include international banks, hedge funds, other portfolio managers and individual traders.

John Caiazzo @jlc7111

While the U.S. administration is advising the public that the economy is "doing well," one needs only to look at the labor situatiion, and I don't mean the published employment rate of 5.8%. There is a shadow employment underemployed rate of over 15%. The economy is in turmoil as well as the social implications of protests, etc. 

John has more than 40 years experience at major U.S. Brokerage firms as Manager and Director of various International Divisions and is the founder of his own trading and brokerage firms. Over the years John has gained a wealth of knowledge and experience in all aspects of investments and trading. He was also a floor trader at the Commodity Exchange in New York. He formed Acuvest in 1999 and can be reached at futures@acuvest.com.

About the Author

Caroline Vakil is an intern for Futures Magazine. Caroline currently studies journalism in Medill School of Journalism at Northwestern University.