June Fed hike odds plummet after non-farm payrolls miss
Friday's dismal economic data has people fearing a US recession
There are a few words no one likes to hear in economics, but the most feared one might just be "recession."
Just because it is worrying, however, doesn't stop people from saying it.
And after Friday's economic data misses from both the Bureau of Labor Statistics' jobs report and the ISM's nonmanufacturing Purchasing Manager's Index, which measures the health of the services economy, there are a few voices that have uttered this feared term.
Barclays' economists brought up worries of a possible recession after the jobs report number.
"Since 1960, when payroll growth has dipped persistently below its recovery-period average, the US economy has more often than not found itself in an NBER-defined recession 9 to 18 months in the future," said Barclays.
"Hence, that payroll growth has fallen below the current expansion average in three of the past four months signals to us that risks of a near- to medium-term recession have risen."
JP Morgan's proprietary model that gauges the risk of a recession starting over the next 12 months also hit its highest mark since the financial crisis on Friday. Most of this was on the back of lackluster economic data.
"With the rally in risk markets over the last month, our models based on financial market pricing now see a recession risk moderately below our model based on macroeconomic data," wrote JP Morgan economist Jesse Edgerton.
"Since last week, we have seen disappointments in the Dallas Fed measures of manufacturing and nonmanufacturing sentiment, the ISM nonmanufacturing index, and the Conference Board measure of consumer confidence."
- Free trading apps
- Over 8,000 signals for copying
- Economic news for exploring financial markets
You agree to website policy and terms of use
Forget about a hike in two weeks
The Fed really knows how to set 'em up and knock 'em down.
In early May the market has buried the idea of a June rate hike but hawkish FOMC Minutes and commentary from Fed members but it firmly back on the table. But the Fed misread the economic situation and now weak jobs numbers have virtually killed the chance of a June hike.
The 38K jobs created was likely skewed lower by a strike of 39,000 Verizon workers but that in now way can explain the huge miss on the 160K jobs expected. In addition, revisions cut 59K jobs from the March and April reports.
The Fed funds futures market had priced in a 20% chance of a June hike before the report but that's immediately fallen to 6% and it's effectively 0% now.
July is still on the table but it's fallen to close to 40% after hitting 53% yesterday.