A Short but Busy Week Ahead

• With a holiday-shortened week ahead, it doesn’t leave much time to cover the plethora of reporting that we’re about to receive, not to mention the on-again, off-again peace deal with Iran. Now that the weekend is over, peace is on again, which seems to be the pattern in this war. Anyway, back to matters economic. The headliner this week will be the June jobs numbers released early on Thursday, but before that we’ll get a bounty of other June and/or labor-related reports to keep all the econ nerds plenty happy. Having just written all that, the week starts slowly with not much today, but tomorrow the data begins in earnest with June consumer confidence and May JOLTS data, and it will build from there. Currently, the 10yr is yielding 4.37%, unchanged on the day, while the 2yr is yielding 4.09%, up 1bp on the day.

 

• Before we turn our attention to this week’s updates, we did get the final University of Michigan Sentiment Survey on Friday, and it improved a bit from the rather dismal May read. Consumer sentiment rose about 10% above May as gas prices moderated. Increases were seen across income, wealth, and political affiliation. Expected business conditions over the next five years rose from 44.1 to 50.7 as consumers’ worries over long-term consequences of the Iran conflict appear to be easing. Still, sentiment remains in unfavorable territory at 13% below the February 2026 reading prior to the start of the Iran conflict (49.5 vs. 56.9), and nearly 20% less than the year ago level of 61.9. The cost of living remains at the forefront of consumers’ minds; for the third straight month, over half of consumers spontaneously mentioned that high prices are weighing down their personal finances.

 

• Despite those worries, expectations for inflation over the next year crept lower from 4.8% in May to 4.6% in June. The current reading, however, easily exceeds the 3.4% expected just before the Iran conflict began. Long-run inflation expectations improved from 3.9% in May to 3.3% in June, above the 2.8% to 3.2% range seen in 2024.

 

• Turning to this week’s early data, tomorrow’s Job Openings and Labor Turnover Survey (JOLTS) is expected to see openings decline from 7.618 million to 7.275 million. The Quits Rate (those leaving jobs voluntarily divided by total employed) stood at 1.9% in April which is at the pre-pandemic rate. The Layoff Rate has remained near pre-pandemic levels too with the April reading at 1.1%. Despite the expected drop in openings, the quits and layoff rates reflect a labor market that is close to equilibrium, which the Fed will want to maintain as they try to engineer a cooler inflation climate.

 

• While last week’s University of Michigan Sentiment Survey improved over April’s rather dismal outlook, the Conference Board will release its view of consumer sentiment tomorrow. The headline sentiment measure is expected to improve slightly from 93.1 to 94.6. Pre-pandemic this measurement resided in the 120 to 140 range (see graph below), so the expected uptick tomorrow remains a far cry from pre-Covid levels.

 

• The monthly jobs report will be released on Thursday, due to the July 4^th weekend, with expectations calling for 125 thousand new jobs, 120 thousand in the private sector (vs. 172 thousand and 120 thousand in May), with the unemployment rate remaining unchanged at 4.3%. Monthly hours worked and average hourly earnings are expected to be unchanged at 34.3 hours, and 0.3%, respectively. Annual Average hourly earnings are expected to improve slightly from 3.4% to 3.5%.  In all, a solid read on the labor market is expected and one that if it meets expectations will allow the Fed the patience to wait on improved inflation numbers.

 

• Finally, last week we released our latest quarterly rate and economic forecast.  With a new Fed Chair voicing strong support for hitting the 2% inflation target, along with a tentative peace deal with Iran, we’ve prepared our latest view of rates and the economy based on these events. Our previous forecast had a rate cut expected before year end, but now that’s flipped to rate hike. Find the forecast here. 

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June Payrolls Expected to Increase by 125 thousand

Source: BLS

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June Univ. of Michigan Sentiment on Gas and Inflation Expectations

Source: U. of Michigan

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Confidence Expected to Improve Slightly but Remain Well Below Pre-Covid Levels

Source: Conf. Board

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May JOLTS – Quits and Layoff Rates Expected to be Unchanged from April Levels