What the May jobs report means for recession risk & Fed cuts

00:00 Speaker A

Treasuries selling off a bit today as the latest jobs report bolsters the case for the Fed to hold rates steady. But the labor market showing signs of gradual moderation, when can we expect to see those cuts from the Fed? Joining us now, Brian Jacobson, Annex Wealth Management’s chief economist. We also have strategist, Omar Aguilar. He is Schwab Asset Management CEO and CIO. Thank you both for being here with us this morning. Brian, I want to start with you. Talk to me about your read on the labor data and just how you factor that into your kind of forecast for the economy at the moment and where we’re at.

00:52 Brian Jacobson

Sure. Yeah. Thank you for having me. So here at Annex on our investment committee, when we’re looking at the data, we really do think that it really supports the idea that the economy is resilient enough to basically skirt a recession this year. We did see some slowing in the payrolls growth earlier this week. There was a little bit more anxiety because of the content of the Beige Book, the ISM manufacturing and service indices, the ADP numbers. All of those are pointing to some sort of almost like kind of fissuring of the labor market, but it’s not bad enough where it looks like we’re going to tip into a recession. So from the big macro perspective, we think that it supports the idea that we’re going to experience some slowing, but not stopping of the overall economy, and that should be a bullish indicator for earnings on a going forward basis.

02:10 Speaker A

Omar, want to get your take and your reading, your recession probability and what that translates through to for portfolio strategy?

02:22 Omar Aguilar

Yeah. Well, the the recession risk, you know, have come down significantly since April. Uh I think, you know, we we were at the high levels of of risk probability of recession back then mostly because of reflection of the uncertainty and and the numbers that we saw in terms of potential inflation implications. Um I think it’s interesting to see just the the labor market numbers today because, you know, it does show a little bit slowing down of the growth in the in the labor market. You know, that being said, you know, we also see a significant reduction in the uh in the size of the labor market. Just a lot of that reflecting immigration policies, you know, that came down by around 600,000. Um so the overall the participation rate has come down. So what that translates into is, you know, it probably is neutral for the Fed in terms of decision making. And what that means is, you know, probably we’re still thinking about early September as the earliest for them to do the first cut because these labor market report, even though it does shows signs of softening, you know, it doesn’t necessarily translating potentially reduction in inflation numbers.