Synopsis:

CIBC’s reaction to the June US jobs report notes that while headline payrolls surprised to the upside, underlying trends continue to show labor market cracks, reinforcing their view that the Fed will stay focused on price stability and hold off easing until December.

Key Points:

• Headline vs. Underlying Picture:
  • June payrolls rose 147K, above the pessimistic 106K consensus, with the three-month average now at 150K after upward revisions.
  • Gains were flattered by strong state and local government hiring, masking weak private sector momentum and continued losses in federal jobs and manufacturing.

• Soft Wage Growth:
  • Average hourly earnings edged down to 0.2% m/m, a notch below expectations, underscoring modest wage pressures despite solid headline gains.

• Mixed Signals on Unemployment:
  • The unemployment rate fell to 4.1%, better than consensus (4.3%), but this was partly due to the participation rate ticking down to 62.3% — another sign of labor supply constraints.

• Key Headwinds Remain:
  • Slowing population growth, ongoing trade tensions, and a federal hiring freeze are seen as persistent headwinds for the US labor market.

• Fed Outlook Unchanged:
  • With the labor market still in “decent shape” and underlying inflation risks lingering, CIBC expects the Fed to prioritize its price stability mandate for now.
  • They maintain their call for the first rate cut in December, emphasizing that near-term policy will stay in wait-and-see mode.

Conclusion:

The June jobs report provides more evidence that while headline numbers remain resilient, the US labor market is gradually cooling beneath the surface. For CIBC, this keeps the Fed on track for a cautious approach, with the first rate cut likely delayed until year-end.